SingTel – DBS

Quarterly results can cause disappointment

Story: We expect the group to report 1QFY09 net underlying profit between S$850m and S$875m (-2.0% to +1% y-o-y) on 12 Aug 2008. We think that this could be 6-9% lower than street estimates as our full year forecast is below consensus.

Point: Indonesian associate Telkomsel reported a sharp 19% y-o-y decline in earnings for the Apr–Jun quarter, which together with the weak Indonesian currency (down 10% y-o-y) implies a 28% y-o-y decline in SGD terms. On the other hand, as per numbers reported by Indian associate Bharti, its contribution would be up 16% y-o-y in SGD terms. Telkomsel contributed 21.2% of the group earnings in FY08 followed by Bharti at 20.4%. Overall, Singapore and Australia would still contribute a healthy EBITDA growth of 4-5% y-o-y, while associates’ earnings contribution would potentially decline 5.7% y-o-y in 1QFY09.

Relevance: We have trimmed Telkomsel’s earnings estimates for FY09 and FY10 by 8% each to factor the impact of lower interconnect charges in Indonesia. This lowers our FY09 and FY10 earnings estimate for SingTel by 1.5% for each year. In our view, management’s guidance of double-digit growth in FY09 earnings for the associates may be too bullish. We maintain HOLD for SingTel with slightly lower SOTP based target price of S$3.70. However, if we use current market prices (instead of target prices) of regional associates in our SOTP valuation, SingTel is worth S$3.30.

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