SingTel – DB

STel’s Sing/Australia fwd PE looking stretched again

STel fell 2.9% today but is still up 18c (6.3%) over the last month despite the per share value of STel’s listed Associates staying effectively unchanged over the same period. The result of this relative STel out-performance versus its listed Associates has been a re-rating of the Sing/Australia businesses. In fact, the current implied Sing/Au fwd PE at 15.5x, although down on yesterday’s 16.3x, is still close to 2yr highs.

A high Sing/Au PE signals near-term STel price weakness

As previously highlighted, the implied Sing/Au fwd PE is inversely correlated with STel’s subsequent near-term price performance. On the 200 specific days over the last 5yrs when the estimated Sing/Au fwd PE exceeded 15.5x, STel’s price fell over the next three months on 89% of such times with an average 11% decline. And since it is difficult to imagine the Associates being significantly re-rated over the near-term (which would de-rate Sing/Au), we expect STel’s share price to be near-term pressured.

STel has been range-bound around S$2.90-3.20 for more than a year. On 26 June 09, it closed at S$3.01 with the Associates valued at S$1.53/share. Today STel is at S$3.04 but the estimated value of the Associates is now S$1.26. This divergence seems a bit odd. In fact, on current FX and prices, the listed Associates are worth S$0.89/share and the Telkomsel stake is estimated at S$0.37/share. And if we apply the average historic PE multiple to our Sing/Au estimate, then the implied value of those business would be S$1.54/share – giving a total theoretical price of S$2.80.

In summary, we expect STel to stay range-bound. But given the current Sing/Au fwd PE, near-term risks are skewed to the downside and it is possible the lower end of the range could be reset at or below S$2.80 over the near-term.

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