SingTel – Phillip

Strong fundamentals

Recent price weakness. The share price of SingTel has dropped recently to S$3.51. This is in line with the fall in the equity markets due to increasing concerns over inflation and the sub-prime mortgage problems.

Portable mobile phone numbers. On 13 June 2008, mobile phone numbers become portable. This has led to the three telecommunications companies, SingTel, StarHub and M1, offering discounts and bundled services to existing and new customers. As a result, their marketing and retention costs will increase.

Discounts and bundled services. Both SingTel and StarHub have the advantage of offering discounts from the bundling of services including pay-TV, broadband and multiple mobile lines whereas M1 can only bundle services from multiple mobile lines as it does not have pay-TV and broadband services. However, M1 provides flexibility by allowing up to five family members to share unused talk time. For StarHub, it allows three family members while SingTel only allows parent and child to share unused talk time. Furthermore, SingTel and StarHub offer live Champions League and English Premier League matches on the mobile phones respectively
while M1 only provides MediaCorp shows on the mobile phones.

SingTel remains as the market leader. We believe that SingTel will be able to retain its market share and remain as the market leader in the Singapore market. We also expect strong profit contributions from Optus and the regional mobile associates. Fundamentally, this is a company that reports strong earnings and pay good dividends.

Ex-Dividend on 6 August 2008. Investors who hold the stock on 6 August will also receive final one-tier tax exempt dividend of S$0.069.

Maintain BUY recommendation, target price at S$4.01. We maintain the target price at S$4.01 and expect SingTel to report good earnings for 1Q FY2009. The recent price weakness presents a good opportunity to buy the stock. Based on its last done share price of S$3.51, there is potential upside of 14.2 percent.

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