SingTel – BT

SingTel looks further afield for surer prospects

SINGAPORE Telecommunications has reported decent enough results for the 12 months ended March 31, 2008. And although the final dividend of 6.9 cents – giving a full-year dividend of 12.5 cents or a yield of 3.33 per cent yield based on Tuesday’s closing share price – could have been better, investors seemed to have shrugged off their disappointment over the absence of a special dividend. The stock closed two cents down at $3.73 yesterday.

In an uncertain economic environment, SingTel along with other telcos in the region, is benefiting as risk-averse investors seek dividend plays with stable earnings prospects. Telcos are increasingly regarded as utilities which people cannot do without.

There was also positive news earlier this week when SingTel announced that it clinched the prize of selling the iconic iPhone in four countries: Singapore, Australia, India and the Philippines. That deal should result in millions of iPhones sold, given that SingTel’s combined customer base in these four countries numbers 93 million.

Yet the group’s prospects are overcast with a shadow from Indonesian associate Telkomsel, Indonesia’s largest mobile phone operator. Last Friday, the Central Jakarta District Court ordered Temasek Holdings and its affiliates to sell one of its two Indonesian telecom units, upholding an earlier ruling by the country’s antitrust body, with some changes. The court cut an earlier fine of 25 billion rupiah to 15 billion rupiah (S$2.23 million) and gave Temasek the option of cutting stakes in both Telkomsel and second-ranked Indosat by half. It also shortened the deadline for divestment to 12 months, from the two-year deadline set by KPPU, the antitrust body.

Although SingTel and Temasek will continue to fight the court ruling by appealing to the country’s Supreme Court, the outcome looks very uncertain.

Some observers may take Jakarta’s policy on consolidating the banking industry as writing on the wall on how it regards the first wave of foreign investors who were invited to bail out its ailing industries in the aftermath of the 1997-98 Asian financial crisis. A Temasek-led group in March sold its 56 per cent stake in PT Bank Internasional Indonesia to Malayan Banking Bhd, helping meet the country’s central bank rules limiting investors to ownership of one bank.

Telkomsel is very important to SingTel. In the quarter ended March 31, its post-tax contribution was up 3.3 per cent to $186 million, accounting for 19 per cent of the group’s underlying net profit. Telkomsel also paid an interim cash dividend in the December 2007 quarter, in which SingTel’s share came to $54 million. For FY2006, Telkomsel paid a full-year dividend of 85 per cent on net profit, and SingTel’s share of this was a massive $550 million.

Given the situation in Indonesia, SingTel’s acquisition strategy takes on a critical hue. And it strengthens talk that SingTel will take an active and direct role in helping 30.4 per cent-held Bharti Airtel, its Indian associate, land the massive takeover bid for South Africa’s MTN. Bharti has said it is in exploratory talks with MTN but has not yet made a bid, in what could become India’s biggest ever foreign corporate takeover.

Media reports have said it is eyeing a stake of 51 per cent at a value of around US$19 billion, which would create the world’s sixth-largest mobile company with 130 million subscribers in more than 20 countries. It would be a coup indeed for Bharti if it succeeds, and even more so for SingTel.

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