SingTel – CIMB

Expect further outperformance

3QFY08 results were within expectations. Reported 3QFY08 earnings of S$952m (- 4.2% yoy) were in line (Outlook remains positive. The strong operating performance continues to support our thesis that SingTel offers reliable earnings growth through a rejuvenated Singapore operation and associates led by Bharti and Telkomsel. However, we note that rising competition in Indonesia could make Telkomsel’s earnings more vulnerable to disappointments. That said, we still expect Telkomsel to remain the dominant operator in Indonesia.

Trimming earnings estimates. We trim our earnings estimates by 0.2-2% for FY08-10 primarily due to updated currency assumptions and an earnings downgrade for Telkomsel, reflecting concerns on rising competition. This is partially offset by an earnings upgrade for Singapore operations.

Maintain Outperform with reduced target price of S$4.45 (S$4.55 previously). Our sum-of-the-parts valuation has been reduced by our updated forex assumptions and Telkomsel earnings downgrade. However the impact is partially offset by our earnings upgrade for Singapore operations and Globe. We expect SingTel to outperform the STI in an environment of heightened risk aversion. SingTel offers defensive earnings growth through a portfolio of “best-in-class” telco operators in the region. We also expect SingTel to surprise consensus with a special dividend in 4QFY08. Potential newsflow on M&As of Vietnam telco assets towards 2H08 should also be supportive of its shares.

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