Citi turns bearish on Singtel after calling DBS stock slump

SINGAPORE: Citigroup Inc’s research team hit the bullseye last month by warning investors about the risk to DBS Group Holdings Inc. shares ahead of earnings. Now, it’s aiming for two from two with a similar call on Singapore Telecommunications Ltd (Singtel).

South-East Asia’s largest mobile service provider is expected to announce first-quarter results on Aug 8 and according to Citi analyst Arthur Pineda, the numbers are set to “surprise on the downside”.

The network operator is likely to report a 19% decline in underlying profit to S$734mil (US$538mil) this quarter, compared to the previous year, Pineda said, citing weaker earnings in Indonesia and India. A stronger Singapore dollar against currencies in the region, where Singtel has many of its businesses, will also impact earnings.

In July, Citigroup Inc’s Robert Kong published a “Negative Catalyst Watch” report on DBS ahead of its second quarter results. And rightly so, the company reported a profit miss yesterday, sending the stock down as much as 3%.

Singtel has lost almost S$6bil in market value this year as its stock has slumped 9.8% ahead of impending competition in two of its major markets. Its local rivals M1 Ltd and StarHub Ltd have declined about 7.9% and 40% respectively, while the benchmark equity index has fallen 3.5%.

Still, Pineda maintains his buy rating on Singtel with a reduced share price target of S$3.80, just below the average analyst estimate of S$3.88. Singtel shares traded around S$3.21 yesterday.

In the longer term, he sees the stock providing a 6% yield which is “better than most” large cap stocks listed in Singapore and regional telecommunication companies.