Fundamentals and Technicals Point Higher. BUY

• Reiterate BUY on SingTel (SGX:Z74) with sum-of-the-parts-based target price of $2.88.
• SingTel's share price has rebounded 25% from its decade low but we see further upside as recovery is underway, driven by upswing from Bharti in FY22E. We see deep value in the stock and it is backed by 5.1% yield.
• Technically, the weekly chart signals a major reversal trend. A breakout above S$2.60 could validate a reversal and start a new uptrend towards S$2.90-3.00. Positive reading in both the stochastic and MACD suggests a chance for SingTel's share price to trade higher. Support is at S$2.27-2.37.

Recovery Underpinned by Associates

• We believe the Indian telco sector is undergoing a structural shift, and it’s benefitting from a surge in data usage. Bharti (BHARTI IN; BUY, Target price: INR750, see PDF) has outpaced its peers across all operating metrics. It is gaining market share from 2G to 4G conversion as 4G subscriber additions at 14.4m q-o-q was higher than Reliance Jio’s of 7.3m in 2Q.
• Our analyst Neerav believe the positive trend should continue sequentially and we expect sector ARPU to grow 2-3% q-o-q within 6 months and BHARTI drives 18% of SingTel’s associates earnings in FY22E.
• Meanwhile in Thailand, the scope for higher dividend payout ratio provides dividend upside for SingTel. Regional associates’ recovery was correlated (coefficient = 0.6) to SingTel's share price in the past.

BUY SingTel Now and Get SG and Australia for Free

• The market is ascribing almost zero value to SingTel’s core business in Singapore and Australia. Further, monetisation of its assets (Optus tower, IPO of Amobee and Trustwave) could unlock an additional S$0.40/share, we estimate.
• SingTel's share price is trading at 14.7x MarFY22E P/E, below its historical mean. It is also trading at 5.1% FY22E yield, in line with its historical average and offers attractive risk-reward.

Technicals Pointing Higher

• Looking at the daily price chart, a breakout above the recent high of S$2.60 could validate a major reversal and set a new uptrend. Meanwhile, the weekly price chart signals a major trend reversal pattern of “inverted head and shoulder”. The positive reading from both the stochastic and MACD (gaining strength) suggests SingTel's share price has a decent chance to trade higher if it breaks S$2.60.
• We see potential for short-term consolidation but downside risk may be capped at support zones of S$2.27-2.37. Once current selling pressure normalises, uptrend is set to resume.

Source: Maybank Kim Eng Research - 18 Jan 2021