SingTel – DBS

Impressive Quarter Once Again

Overall results exceed expectations. Underlying net profit of S$931m (up 22% yoy, 2% qoq) exceeded our forecast of S$912m and consensus forecast of S$907m. Besides there was exceptional income of S$21m in 3Q08. We have excluded S$84m in compensation from IDA from last year results for fair comparison.

Singapore business inline with impressive market share gains. Singapore EBITDA contribution of S$479m was in line with our expectations of S$480m. EBITDA margin of 38.7, though slightly below our expectations of 39% margin, was compensated by higher revenue growth of 11%. Continuous market share gains in mobile business were quite impressive as SingTel garnered almost 60% of the total new subscribers added in the quarter.

Australia business inline with better performance across fixed line. Optus EBITDA contribution at A$506m was (up 1% yoy, 6% qoq) in line with our expectations of S$505m. However, EBITDA was up 9% in S$ terms as A$ is up 8% yoy. Due to aggressive subscriber acquisition plans, mobile business margins were hit, which were compensated by higher margins in fixed line business from higher on-net volumes.

Regional associates above expectations mainly due to Globe Telecom. Regional associates contributed S$656m (up 30% yoy, 4% qoq) in pre-tax earnings, which is slightly higher than our expectation of S$645m. Bharti’s, Telkomsel and Globe’s contribution grew 39%, 23% and 55% yoy respectively. Globe Telecom surprised on the upside due to higher subscriber growth and data services in the festival season along with forex gains.

Healthy Outlook. Market share gains in Singapore should reflect in better margins next year. Bharti should continue to register impressive growth while Telkomsel could witness some slowdown due to lower tariffs. Maintain BUY at SOTP based target price of S$4.50

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