Singapore Telecommunications (SGX:Z74) Could Be 53% Undervalued After Mixed Q1 Earnings

Why Singapore Telecommunications Q1 earnings matter for investors

Singapore Telecommunications (SGX:Z74) recently released first quarter results that showed sales of S$3,558 million compared to S$3,392 million a year earlier, while net income was S$818 million compared to S$2,882 million.

This mix of higher sales and much lower profit is likely what caught investors’ attention in recent trading and sets the context for evaluating how the stock’s current performance lines up with the latest fundamentals.

See our latest analysis for Singapore Telecommunications.

At a share price of S$4.45, Singapore Telecommunications has seen a 1-day share price return of 4.71% and a 7-day share price return of 3.49%, while the 90-day share price return is down 7.68%. Over longer horizons, total shareholder return of 12.94% over 1 year and very large gains over 3 and 5 years suggest longer term holders have fared better than short term traders as the latest earnings reset expectations around growth and risk.

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Analyst targets and some estimates of fair value sit above the current S$4.45 share price for Singapore Telecommunications after this mixed Q1 result. Is that discount a sign of opportunity, or a warning that the market’s caution is reasonable?

Price-to-earnings of 20.5x for Singapore Telecommunications: Is it justified?

On a P/E of 20.5x, Singapore Telecommunications currently trades at a higher earnings multiple than both its peer group average of 15.3x and the Asian telecom industry average of 17x. That places the stock at a premium to similar telecom companies, even after the recent share price performance around S$4.45.

The P/E ratio compares the share price to earnings per share. For a telecom group like Singapore Telecommunications, it helps you see how much investors are paying today for each dollar of current earnings. A higher P/E can reflect confidence that earnings will grow, but it can also signal that expectations are already demanding.

Here the picture is mixed. On one hand, the stock is described as good value when comparing its current P/E of 20.5x to an estimated fair P/E of 26.9x, which suggests the market multiple could move higher if that fair ratio proves accurate. On the other hand, the same 20.5x P/E stands above peers and the broader Asian telecom average, which points to investors already paying more for Singapore Telecommunications earnings than for many comparable telecom stocks.

Explore the SWS fair ratio for Singapore Telecommunications

Result: Price-to-earnings of 20.5x (ABOUT RIGHT)

However, earnings pressure and the risk that Singapore Telecommunications continues to trade above peer P/E levels could both challenge the idea that today’s discount is attractive.

Find out about the key risks to this Singapore Telecommunications narrative.

Another view on Singapore Telecommunications valuation

The P/E comparison suggests Singapore Telecommunications is on the expensive side relative to peers, even if the current ratio of 20.5x sits below a fair ratio estimate of 26.9x. Our DCF model points the other way and indicates the stock trades at a steep discount to its future cash flow value.

This DCF result suggests Singapore Telecommunications at S$4.45 is trading well below an estimated value of S$9.48. That is a very different message from the rich P/E versus the telecom sector. Which signal do you treat as more useful for your own process?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Singapore Telecommunications for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 260 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

With mixed signals around Singapore Telecommunications, it makes sense to look past the headline numbers and check the details yourself before forming a view. To weigh up both sides of the story, including the key issues that concern investors and the factors they are optimistic about, start with the 2 key rewards and 3 important warning signs.

Looking for more investment ideas beyond Singapore Telecommunications?

If you are reassessing Singapore Telecommunications after these Q1 results, do not stop there. Use this moment to refresh your watchlist with fresh ideas.

• Target dependable cash generators by scanning companies with robust payouts and resilience using the 442 dividend fortresses.
• Spot potential mispricing by reviewing companies that appear attractively valued on quality and fundamentals through the 260 high quality undervalued stocks.
• Strengthen your downside protection by focusing on companies that score well on resilience and risk using the 300 resilient stocks with low risk scores.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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