Analysts from Maybank Securities and DBS Group Research have kept their “buy” calls on Singapore Telecommunications Z74 (Singtel), after its subsidiary Bharti Airtel announced that it is raising tariffs by 10% - 21% for all its prepaid and postpaid users on July 3.
Maybank’s analyst Hussaini Saifee raised his target price for Singtel to $3.40 from $3.24, on the back of higher Bharti Airtel valuation, and the DBS team has left its target price unchanged at $3.50.
Bharti Airtel, which Singtel owns around 29% of a stake in, is one of the two largest telecom operators in India. Alongside its peer Jio, both companies raised their tariffs for the first time in three years, aiming to begin recouping the billions poured into 5G technology over the last two years.
Saifee from Maybank in his July 1 note says that Bharti’s FY2025 - FY2027 India mobile revenues are expected to rise by 7% - 9%, factoring in a price elasticity of 60%.
Further assuming a pass-through impact of higher revenues on ebitda at 60%, he sees India mobile ebitda rising 7% - 10% in FY2025 - FY2027, which translates to an ebitda lift of INR37 billion - INR55 billion ($602 million - $903 million) for the time period.
He adds that the 25% corporate tax rate will translate to Bharti Airtel earnings rising INR28 billion - INR 42 billion ($452 million - $677 million) in FY2025 - FY2027.
As such, the analyst raises his Singtel earnings estimates by 4% - 8% in FY2025 - FY2027. “We lift our Singtel sum of the parts (SOTP)-based target price to $3.40,” says Saifee.
Likewise, DBS analysts note that Bharti Airtel’s share price has risen by 9% since their last report on May 24 in anticipation of tariff hikes.
“We estimate each 10% rise in Bharti’s share price to benefit Singtel's SOTP valuation by 4.8%. So the benefit to Singtel's share price should be 4.5% based on the rise in Bharti's share price so far,” they say.
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DBS’s unchanged target price of $3.50 represents an over 25% upside potential and an estimated yield of 6%.
As at 10.49am, shares in Singtel are trading flat at $2.75.
