Singtel Shares Drop 3% Following US$2.3B Impairment

Singapore Telecommunications (Singtel), Southeast Asia’s largest telecommunications company, saw its shares drop by as much as 3.3% on Monday, April 29th, to a more than one-week low. This followed the company's forecast of non-cash impairment provisions amounting to S$3.1 billion (US$2.28 billion) for the second half of fiscal year 2024.

The anticipated impairment provisions are expected to result in Singtel reporting a net loss for that period and, consequently, a lower net profit for the full financial year ending March 31st, 2024.

At midday on Monday, Singtel shares were down by another 2.5%, trading at S$2.35 per share—an underperformance compared to the broader benchmark stock index, which only experienced a decline of about 0.2%.

Hussaini Saifee, a Maybank Research analyst, remained optimistic about Singtel's prospects despite the recent downturn: "Singtel highlighted that this won't impact its dividend, which is based on seventy percent to ninety percent of underlying net income, while non-cash impairment charges will be booked as one-offs."

Maybank Research has reiterated its buy rating on Singtel, maintaining an unchanged price target of S$3.05 per share.

Furthermore, according to information from within the telecom giant itself, "SingTel is still poised to pay at the upper end of its dividend policy for the fiscal year ending March 31, 2024."

SingTel's mobile network operation unit in Australia, Optus, contributes approximately two-thirds, or S$2 billion, of the total anticipated impairment provision; they disclosed this in their filing report.

SingTel has dismissed recent reports about potential stake divestment talks, ruling out any impending deal concerning Optus after these negotiations reportedly collapsed.

The decline in Singtel's shares and the forecasted impairment provisions suggest a challenging period ahead for the telecom behemoth. However, it is noteworthy that, despite these challenges, SingTel remains confident about maintaining its dividend policy. This decision to uphold dividends at their current levels demonstrates management’s confidence in the company’s long-term profitability and sustainability, which may provide some reassurance for investors during this uncertain period.

Nonetheless, with approximately S$2 billion of impairments coming from Optus' goodwill—an indicator of brand strength—there are concerns over Singtel's competitiveness within the mobile network operation sector. The termination of potential stake divestment talks further underscores these concerns.

In conclusion, while short-term prospects appear troublesome for Singtel due to non-cash impairment charges and declining share prices, their commitment to honoring dividend policies coupled with Maybank Research's continued 'buy' rating suggests faith in their longer-term outlook. Investors will likely be monitoring developments closely as they unfold.