Yahoo Finance Singtel’s Share Price is Hitting a 3-Month Low: Should Investors Be Concerned?
Singtel (SGX: Z74) once again finds itself unwittingly being thrust into the spotlight.
Late last month, the telco’s Australian subsidiary, Optus, reported that hackers had accessed and stolen the personal information of around 9.8 million customers, or around a third of Australia’s population.
Around 2.8 million of them had lost details of passports, driver’s licences and government-issued identity card numbers, potentially compromising their security and opening them up to large-scale fraud.
Since this news was released, Singtel has seen its share price slump to a three-month low of S$2.49.
The blue-chip telco has to contend with the negative fallout from the news and is assessing the situation to determine its legal and financial exposure.
Are shares of the group a buying opportunity? Or is there more than meets the eye?
Implications for Optus’ data breach
There are widespread implications for Optus’ massive data breach.
Australia’s Prime Minister Anthony Albanese has commented that Optus should pay for replacement passports, while states in the country have asked the telco to pick up the tab for the issuance of new driver’s licences.
To make matters worse, two major law firms in Australia are investigating a possible class action lawsuit against Optus to claim compensation for people affected by this breach.
The Sydney Morning Herald has estimated that the total cost to replace all three documents affected by the breach may amount to around S$610 million.
For context, Singtel group’s underlying net profit for its fiscal 2022 (FY2022) ending 31 March 2022 came up to S$1.87 billion.
The fine could, therefore, wipe out around a third of the group’s net profit.
Singtel, however, has clarified that it is still making its assessment of the damage and that any estimate of the amounts liable is “speculative” at this point.
What’s certain, though, is that Optus will suffer significant reputational damage from this fiasco.
As the cost of the data breach is being tallied up, parent company Singtel also needs to expend time, resources and effort to do damage control.
With Optus being cast in the negative spotlight, it’s unlikely that the unit can successfully pull off a planned IPO.
A flurry of worries
As the saying goes – when it rains, it pours.
Just this week, Singtel also revealed that Dialog, an Australia-based IT services consulting business that was acquired by its NCS unit earlier this year, had faced a cyberattack as well.
The attack was first detected on September 10 and potentially affected 1,000 current and former employees and fewer than 20 clients.
These two incidents highlight the need for the telco to beef up its cybersecurity measures, a move that could result in higher capital expenditures for the group.
Suffice to say that these two back-to-back incidences show that Singtel seems woefully unprepared for cyberattacks.
The costs of these data breaches stretch beyond financial compensation as customers and other stakeholders will lose confidence in the telco, resulting in reduced business.
To add to these troubles, Singtel may also have additional tax exposure and penalties after an Australian court dismissed its appeal against a tax assessment relating to its acquisition of Optus in 2001.
A provision of S$317 million has been taken in FY2022’s financial statements.
Weaker consumer demand
Economies are reopening and air travel is resuming once again.
Singtel was optimistic about growth for its consumer division amid its strategic review and had communicated various objectives during its recent Investor Day.
There are plans to regionalise NCS, build a regional data centre platform, and improve contributions from its Asian associates.
However, with inflation remaining high and interest rates rising sharply, consumer demand is projected to weaken as more people tighten their belts.
The boom from air travel will still benefit Singtel’s roaming revenue, but customers may cut back on spending on new Pay TV, broadband, and mobile plans as higher costs bite into their budgets.
Get Smart: Pessimism should persist in the near term
Unfortunately, the impact of the data breach will continue to persist as Singtel tallies up its financial and reputational damage.
Management has yet to make a formal statement regarding the Optus incident and may also need to re-jig their numbers to invest in better security to restore confidence.
The share price weakness seems justified until the telco can communicate how it intends to do better moving forward.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.
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