SingTel – ML

Telkomsel drives PO Upgrade

PO upgraded 6% to $4.31/sh
We raise our PO for SingTel 6% from $4.05/sh to $4.31/sh, primarily on the back of an 8% increase in PT Telkom’s PO post its 2Q07 result. As part of his PT Telkom (TLKMF, C-1-7, Rp11,650) PO increase, Verdi Budiman increased his DCF valuation on Telkomsel (65% owned by PT Telkom, 35% owned by SingTel) by 28% from Rp199trn to Rp256trn. This adds 21¢/sh to our SingTel valuation.

Weak SGD also helps
On a SingTel earnings weighted basis, the Singapore dollar is down 3% YTD against SingTel’s subsidiary and major Associate countries. In particular, the SGD is down 7% against the AUD YTD. We rebase our earnings and valuation forecasts on current spot currency rates which adds a further 5¢/sh to our PO.

35% potential return
Our PO combined with our 11.5¢/sh dividend forecast now implies 36% potential return. We have buy recommendations on all of SingTel’s main mobile Associates and believe the flat outlook for the Optus/Singapore domestic stub is more than factored into the current share price. We reiterate our Buy rec.

1Q08 earnings preview – expect strong EPS growth
SingTel is scheduled to report its 1Q08 result on 14th August. We are forecasting pre-exceptional FY08 NPAT growth of 4.6% driven by 26% growth in contribution from Associates and 3.5% growth in consolidated EBITDA. After the capital reduction in September 2006, EPS is expected to increase by 10%. IDA Compensation ($84m per quarter) will not be accounted for from 1Q08 onwards and 1Q07 also benefited from 2 quarters of contributions from Globe. Excluding these two factors, we expect underlying EPS growth of c.26%.

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