SingTel’s share price slides as Australian Dollar slips

Optus makes up 50% of its revenue.

Is Singapore’s largest market cap stock at risk? According to OCBC, SingTel’s share price has fallen some 7% to hit a recent $3.64 low since 14 August, thanks to the Australian Dollar’s continued weakness against the SGD.

But now may be a good time to invest in SingTel stocks. OCBC estimates that Optus accounts for some 50% of the group’s revenue, and about 30% of its net profit after tax.

“We note that the share price has fallen close to our comfort level of S$3.60, which in our view, should have captured most of the negativity surrounding the AUD’s slide. In any case, some market watchers expect the AUD to consolidate around current levels and possibly edge up slightly against the SGD towards the year end before easing slightly towards end 2015. And with SingTel expected to pay around 60-75% of its underlying net profit as dividend, we believe that the forecast yield of 4.6% for FY15 is starting to look quite respectable,” noted OCBC.

Here’s more from OCBC:

We note that SingTel is making progress in moving beyond just a pure telco play; this following its move to acquire Adconion and Kontera for a total of US$359m in Jun this year – a move to further its Digital Life strategy of turning amobee into the global leader in mobile-led digital advertising space. 

However, we note that this is still very much work in progress – SingTel has also alluded that it may take 3-5 years for amobee to break even and become profitable. 

Nevertheless, we recognize that this is an important step as the traditional telco space which is increasingly being commoditized.

While we are paring down our AUD/SGD assumption slightly, which reduces our FY15 estimates for topline by 2.2% and bottomline by 0.5%, our SOTP-based fair value remains unchanged at S$4.08 due to the higher market value of its listed associates.