Singtel nears two-year lows, will it go lower? (2 Feb 18)

Dear all

Singtel has breached below $3.50 on increased volume last Fri. This is significant as it has not closed below $3.50 since 4 Feb 2016. Volume has picked up significantly with the drop. Will Singtel go lower?

 

Singtel’s chart analysis

Singtel has breached below its trading range $3.57 – 3.65 established between 18 Dec 2017 – 30 Jan 2018 on 31 Jan 2018. Volume has accompanied the fall by surging for the past four days and the volume of shares transacted for the past three days hit a daily volume of 49 – 51m shares per day. This is the highest daily volume transacted for the past eight months.

The break at $3.57 points to a measured technical target of $3.48 which should be easily attained. Indicators such as OBV is at a three-year low. Amid negatively placed directional indicators, ADX has started to rise from 23.0 on 29 Jan 2018 to close 28.4 on 2 Feb 2018. All the exponential moving averages (“EMA”) such as 20D, 50D, 100D and 200D are diverging and trending downwards. In a nutshell, it seems to indicate that the downwards trend is strengthening.

Singtel’s RSI closed at 28.1. Although the current level can be considered as oversold, it is noteworthy that the lowest RSI that Singtel went to was around 16.2.

Near term supports: $3.46 / 3.43 / 3.38 – 3.40

Near term resistances: $3.52 / 3.54 / 3.57

Chart 1: Singtel broke below $3.50 with volume

Singtel chart dated 2 Feb 18

Source: Chartnexus 2 Feb 18

 

Noteworthy points

Besides the weak chart, there are some noteworthy points which may serve as headwinds for Singtel at least in the short term.

a) U.S. 10-year treasury yields surged to 2.84% last Fri

It is noteworthy that U.S. 10-year treasury yields have soared from 2.46% at the start of the year to close at 2.84% last Fri. This is the fastest appreciation since Nov 2016. Furthermore, at 2.84%, U.S. 10-year treasury yields have reached a four year high. How does this affect Singtel?

Generally speaking, the rise in U.S. 10-year treasury yields reduce the attractiveness of dividend yielding stocks such as reits and telecom stocks. For example, based on Table 1 below, both FTSE ST Reit and FTSE ST Telecom have slumped at least 3% for the past one week.

Table 1: Performance for reit & telecom sector for the past week

Sector benchmark 26 Jan close 2 Feb close % chg
FTSE ST Reit 871.05 843.45 -3.2%
FTSE ST Telecom 922.16 894.18 -3.0%

Source: Ernest’s compilations

b) Many brokerage houses are neutral on telecom sector

Many brokerage houses have maintained their neutral outlook on telecom for 2018, citing rising competition and potential earnings slowdown. In a 12 Jan 2018 report, UOB Kayhian has downgraded our Singapore telecom sector to market weight (while maintaining a buy call on Singtel).

c) Singtel releases 3QFY18F results on 8 Feb, before market opens

Singtel reports 3QFY18F results on 8 Feb, before market opens. The investment community is likely to scrutinise Singtel’s results and its prospects. A weaker than expected results or outlook may worsen the sentiment on Singtel (at least) in the short term.

 

Notwithstanding the above, it is noteworthy that

a) Singtel’s valuations are lower than its five-year average

Based on Figure 1 below, Singtel is trading at 12.6x EV / EBITDA. This is below its five-year historical average of 13.6x and just above its five-year low of 12.0x.

Figure 1: Singtel’s valuations

EV_EBITDA

Source: Bloomberg 2 Feb 18

b) Most analysts favour Singtel over M1, Starhub

Although most brokerage houses are neutral on our telecom sector, most analysts are still ascribing a buy call on Singtel with an average analyst target price of $4.23. (See Figure 2 below). However, it is noteworthy that analysts’ target prices may change post Singtel 3QFY18F results.

Figure 2: Singtel’s average analyst target price

Singtel analyst target price dated 2 Feb 18

Source: Bloomberg 2 Feb 18

 

My two cents’ worth

The above write-up mainly focuses on Singtel’s chart, coupled with some points which I have highlighted that I think may be interesting to readers. In conclusion, Singtel’s chart seems weak, especially when the selling is accompanied with higher than average volume. Nevertheless, a stronger than expected set of results, coupled with strong guidance may be able to counteract the selling pressure. Watch out for its results on 8 Feb 2018.

 

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P.S: Do note that as I am a full time remisier, I can change my equity allocation / trading views fast to capitalize on the markets’ movements.

 

Disclaimer

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