SingTel – BT

Index-linked selling pushes SingTel down 9.6%

At $2.06 – its lowest since Feb 2004 – it’s cheaper than rival StarHub

A SINGTEL share is now cheaper than a StarHub share, after investors dumped SingTel’s stock yesterday in index-linked selling.

While concerns of Aussie-dollar weakness and slowing earnings growth have added to bearish sentiment on the SingTel stock, dealers said the sell-off was largely triggered by selling of index stocks.

SingTel slipped 9.6 per cent to $2.06 – its lowest price since February 2004 – on active volume of 43.08 million shares. StarHub closed at $2.10.

‘The market is pessimistic and is using SingTel as a proxy because that’s the most liquid stock,’ said OCBC analyst Carey Wong. ‘That’s part and parcel of being in the main index and by far having the largest market cap and being the heaviest weight in the index.’ He has a ‘buy’ call on SingTel but is placing his rating under review pending fiscal Q2 results due on Nov 12. Mr Wong is looking for more clarity on SingTel’s Australian business Optus but believes that the worst of forex losses is behind SingTel.

Yesterday afternoon, news broke that Australian-based Soul, the former SP Telemedia, has withdrawn from a SingTel-led group bidding to build Australia’s national high-speed Internet network – the second company to do so after Telecom Corp quit last week. This may undermine the consortium’s chances of success.

Analysts believe that yesterday’s share sell-off had less to do with SingTel’s fundamentals, although there has been some bad news recently. SingTel said earlier this week that Optus will cull 115 jobs from its key Optus Networks division, which oversees the deployment and maintenance of wireless and fixed-line infrastructure. SingTel has imposed a headcount freeze in Singapore and introduced cost-cutting measures.

A local tech analyst noted that SingTel’s fundamentals remain relatively better than those in many other sectors and that its earnings are more resilient than those of other telcos.

But recent expenses, such as sponsorship of the Formula One Grand Prix and the initial cost incurred in carrying Apple’s iPhone, could add to woes of rising costs and eroding margins.

Analysts have trimmed their forecasts for SingTel to price in the impact of the economic slowdown. They expect higher costs and slower revenue growth in FY09.

Noting that SingTel faces earnings pressure domestically and overseas, DBS Vickers analyst Sachin Mittal trimmed his FY09 and FY10 earnings forecasts by 5.5 per cent and 7.5 per cent respectively to price in potentially disappointing growth at India’s Bharti next year and lower corporate spending in Singapore. He maintained a ‘hold’ call on the stock.

ABN Amro analysts Ian Martin and Arthur Pineda said in a report that they are cutting their forecasts for revenue growth and margin gain at Optus in the context of an economic slowdown. ‘We believe negative risks are more evident than positive ones,’ they said. ‘Negative risks include a more rapid slowdown in revenue growth in Singapore and among associates.’

They changed their rating on the stock to ‘hold’ from ‘sell’, given the sharper than expected fall in the share price.

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