SingTel – Phillip

Within Expectations

FY08 Results. SingTel reported FY08 operating revenue of S$14,844m (+11.0% yoy) and net profit of S$3,960m (+4.8% yoy). Moreover, EBITDA increased to S$7,089m (+5.9% yoy). Revenue increased due to growth of the Singapore operations and appreciation of the Australian dollar. Moreover, net profit was higher as a result of the strong performances from the regional mobile associates.

However, the operational EBITDA margin dropped to 30.5 percent (-1.5% yoy) mainly due to higher mobile subscriber acquisition and retention costs in the Singapore market.

It also announced a final dividend of 6.9 cents per shares. Together with the interim dividend of 5.6 cents per share, the total dividend for FY08 is 12.5 cents per share. This is higher than the dividend of 11 cents per share in FY07.

Strong Performances. In Singapore, SingTel continued to post double-digit revenue growth of 12 percent to S$1.29 billion due to success in its growth segments such as mobile communications, data and internet as well as IT and engineering. Moreover, in Australia, Optus achieved a slight increase in operating revenue of 3.8 percent to A$7.76 billion despite a highly competitive market.

The regional mobile associates also posted better-than-expected results for the quarter. Pre-tax earnings gained 24 percent to S$2.56 billion due to the better performances from Bharti Telecom, Telkomsel and Globe.

FY09 Outlook. Management expects its operating revenue in Singapore to grow at mid single-digit level despite the commencement of Mobile Number Portability (MNP) on 13 June 2008. The revenue growth for Optus is likely to be at single-digit level, which will be driven by mobile and wireless broadband services.

Meanwhile, the pre-tax profit contribution from the regional mobile associates is expected to grow at double-digits levels, albeit at a slower pace than the past two years. This is due to more competition in the Indonesian market and higher losses from Warid as it continues to expand its network in Pakistan.

Maintain BUY recommendation, target price reduced from S$4.22 to S$4.01. We have reduced the target price to S$4.01 as we have cut our estimated profit contributions from SingTel’s regional mobile associates. We expect competition to intensify in the regional markets. Moreover, the strong Singapore dollar will result in lower profits when profits are converted from foreign currencies to Singapore dollar.

Nevertheless, SingTel remains a BUY for investors. This is because it pays good dividends. Furthermore, its business continues to grow in Singapore and Australia with strong revenue contributions from its regional mobile associates.

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