DBS also likes Singtel and StarHub for their dividend yields or about 5.4% and 7.1%, respectively.
“With almost 100% of free cash flow being paid out as dividends to shareholders, dividend yield has become more meaningful than non-cash earnings, in our view,” says Mittal.
Amid the Covid-19 pandemic, roaming revenue in Singapore (which makes up 12-20% of mobile revenue) will be the biggest causality followed by prepaid mobile revenue (which comprises 15-20% of mobile revenue).
As for Singtel, the analyst expects the group to be impacted by the fall in Aussie dollar, drop in roaming revenue in Australia which account for 5-6% of Optus’s mobile revenue and potential weakness in regional currencies.
Singtel is trading at about 5.4% yield translating into +2SD yield over the last 15 years.
“If Singtel were to reduce capex, it may surprise with a 15-cent DPS versus our projection of a 14-cent DPS,” says Mittal, who has also reduced Singtel’s FY21/22 earnings forecasts by 10%/6% and has conservatively trimmed FY21 dividend per share (DPS) to 14 cents from 15 cents.
StarHub is currently trading at about 7.1% yield compared to 1SD yield of 7.8% and may benefit from its joint bid with M1 for Nationwide 5G license.
Nonetheless, the analyst has reduced StarHub’s FY21/22 earnings forecasts by 9%/4% on lingering Covid-19 impact.
On the other hand, Netlink is trading at about 6% dividend yield near its +1SD yield of 6.0% derived from a 90-basis points (bps) reduction in +1SD yield of industrial S-REITs. Netlink’s net debt-to-EBITDA of less than 2 times, suggests ample room to raise debt if needed.
In a bear-case scenario, shares in Netlink could drop to 76 cents, Singtel may fall to $2.18, and StarHub might decline to $1.00.
As at 11.50am, shares in Singtel are trading at $2.54, Starhub at $1.29 and Netlink NBN Trust at 88 cents.
