SingTel – CIMB

Strong follow-through from 1QFY08

In-line. Reported 2QFY08 earnings of S$988m (+3.4%yoy) was 4% ahead of our estimates but beat consensus by 10%. Excluding exceptional gain of S$75m (mostly sale of Network i2i to Bharti), core earnings of S$914m (12.1%yoy). This was a strong follow-through from 1QFY08’s results. Key positives were: 1) 10.9%yoy top-line growth; 2) 17%yoy associates growth; 3) Interim DPS of 5.6 cts (+24%yoy). Key disappointment was qoq EBITDA margin decline of 120bps.

Top-line sparkles. 2QFY08 revenue growth (10.9%yoy) was powered by continued robust Singapore operations (+9.6%yoy) as well as a stronger A$ which helped lift Optus S$ revenue (+12%yoy). Singapore revenues was driven by mobile (+13%yoy) on solid prepaid (+79%yoy) and subscriber growth (6.8%yoy). ARPU also increased for prepaid (S$15, +15%yoy) on MOU growth and postpaid (S$90, +3%yoy) on MOU as well data usage growth. In A$ terms, Optus top-line grew 3.7%yoy which was slightly above our expectation on new product launches
and increased customer acquisition activities.

EBITDA margin decline was higher than expected primarily due to faster growth of low-margin IT business (a product mix issue) in Singapore and more aggressive marketing at Optus. EBITDA margin for Singapore telco operations were within our expectation.

Associates PBT contribution grew 17%yoy. Growth was powered by Bharti (+79.3%yoy) and to a lesser extent, Telkomsel (+9.6%yoy) which was dragged down by a weaker rupiah. In rupiah terms, Telkomsel posted 16%yoy gain in PBT contribution. Globe’s core PBT grew 23%yoy. AIS was the only disappointment which grew 3.7%yoy which essentially boosted by a stronger baht.

Maintain Outperform and target price of S$4.54. We continue to like SingTel for liquid exposure to high-growth associates, namely Bharti and Telkomsel. We also like the rejuvenated Singapore operations and reiterate our expectation for SingTel to surprise consensus on the dividend front. SingTel remains our top pick for Singapore telcos over the next 6 months.

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