SingTel – Phillip

Attractive Valuation

1Q results. SingTel reported 1Q operating revenue of S$3,567m (+10.5% yoy) and net profit of S$927m (+10.4% yoy). Moreover, EBITDA increased to S$1,769m (+9.2% yoy). All the three components of its business – SingTel, Optus and regional associates – contributed to the strong performance.

Strong growth in its business. In Singapore, SingTel benefited from the strong domestic economy. It managed to retain its market leadership position and saw its revenues for the telecoms and IT businesses grow. Moreover, in Australia, Optus achieved an increase in operating revenue of 3.5 percent to A$1.9 billion despite a highly competitive market.

The regional mobile associates also posted good results for the quarter. Pre-tax earnings gained 51 percent to S$652m while post-tax earnings increased 29 percent to S$463m. These results were due to the better performances from PT Telkomsel Selular, Bharti Telecom Group and Globe Telecom. However, Advanced Info Service and Pacific Bangladesh Telecom Limited posted poor results.

FY2008 Outlook. Management is optimistic about its business in 2007. In Singapore, operating revenue is expected to grow at single-digit level and capital expenditure to revenue ratio is expected to be in low double-digits. The revenue growth for Optus is likely to be to 2.5 to 3 percent and capital expenditure is approximately A$1.1 billion.

Meanwhile, the pre-tax profit contribution from the regional mobile associates is expected to grow at double digits levels and cash dividends from associates are likely to increase.

Maintain Buy recommendation, target price raised slightly from S$3.85 to S$3.90. SingTel remains attractive for investors. This is because it pays good dividends. Moreover, its business continues to grow in Singapore and Australia with strong contributions from its regional mobile associates. The stock has also been resilient during the recent market correction. In fact, it is also a defensive stock.

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