SingTel – CIMB

Closer look at 4QFY08 results

In line. FY08 net profit of S$3.96bn (+4.8% yoy) is 2.4% ahead of our estimate but beats consensus by 5%. 4Q08 core earnings of S$968m were up 9.8% yoy. DPS of 12 cts/share disappointed but signals SingTel is serious about MTN acquisition.

Singapore: topline growth with margin compression. Mobile subscriber market share gains and ARPU growth drove FY08 topline growth of 11% yoy. EBITDA margin was down 270bp yoy on higher subscriber acquisition costs. Revenue growth should moderate to 3.7% in FY09, with stable EBITDA margin of 40% (guidance).

Optus: topline growth revived, margins next? FY08 topline grew 3.8% yoy on subscriber growth and launch of wireless broadband. EBITDA margin showed signs of revival (+280 bp qoq). Momentum from wireless broadband and further prepaid subscriber growth could support sustainable margin expansion in FY09.

Associates: strong performance but slower growth ahead. FY08 was a strong year, driven by Bharti, Telkomsel and favourable exchange rates. Expectations for stronger S$ and price-war woes for Telkomsel mean slower growth ahead.

Maintaining Neutral with sum-of-parts valuation of S$4.05. Slower growth outlook with limited scope for upside earnings surprise drive our Neutral rating. FY09-11 DPS trimmed by 11-23% as we expect SingTel to prefer to keep the powder dry for acquisitions amidst credit crisis. However, SingTel remains our top pick for Singapore telcos as it offers the best earnings growth prospects while potential acquisition of MTN with/via Bharti is a near-term re-rating catalyst.

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