SingTel – DBS

Associate setback but potential special dividends

Story: SingTel’s upcoming 4QFY08 results will be clouded by a strong Singapore dollar and not-so strong performance of Indonesian associate Telkomsel. We expect SingTel to complement its regular dividend with a special dividend to be announced with 4QFY08 results.

Point: Three issues surrounding SingTel are (i) concerns of strong appreciation of SGD against the Indian rupee that could impact earnings and valuation contribution of its Indian associate – Bharti in terms of SGD; (ii) significant reduction in tariff of Indonesian associate Telkomsel that could lower its earnings contribution; and (iii) SingTel potentially paying 8-10 cents in special dividends on top of the 6.5 cents regular dividend with 4QFY08 results.

Relevance: We trimmed our pre-exceptional estimates for FY08F and FY09F by 1.4% and 3.7%, respectively. Overall, net profit for FY08F is unchanged due to S$155m exceptional income (evident in 9M08 results) compared to our assumption of S$100m. SingTel remains a BUY with a new sum-of-parts (SOP) based valuation of S$4.35 (prev. S$4.50) due to lower contribution from Telkomsel and Bharti.

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