SingTel – CIMB

Raising fixed line rates

SingTel will raise both residential and business fixed line voice: a) subscription rates and b) call charges from 1 Jan 09, as summarised below. Subscription fee is raised by 7-10% and call charges by 14%. ‘For us (in Singapore), it’s no longer business as usual.

Separately, SingTel Singapore CEO Allen Lew said, “We are already starting to see the impact of the global financial crisis on some parts of the business. We are adopting a (cost-cutting) framework that is customised for what we see as a 12 to 18 month period of uncertainty and difficult economic environment.” SingTel will also rein in “discretionary costs” such as its advertising expenses. “Until our revenue starts flowing back like the old days, we will definitely have to cut back.”

Comments

Small positive. Fixed line voice revenue contribute to 5-6% of FY10-12 SingTel Singapore’s revenue and only 2% of group revenue. Assuming a weighted average 10% increase in fixed voice revenue, with zero marginal cost and 18% corporate tax, SingTel’s FY10-12 core net profit is boosted by 0.5-0.7%. Hence, we maintain our forecast.

Fixed-to-mobile migration is unlikely to be hastened significantly as fixed line tariffs are substantially cheaper than that of mobile. Fixed line charges will be 1.6 cts/min vs mobile of tariff of 8-25 cts/min.

Valuation and recommendation

Maintain UNDERPERFORM, on SingTel with a SOP-based target price of S$3.50 over: 1) concerns over expected stiff competition between SingTel and StarHub for the exclusive rights for the 2010-2012 seasons for the Barclays Premier League and 2010 World Cup; 2) a cautious outlook. We gather that corporate users are cutting back on telco services; and 3) the appreciation of the S$ vis-à-vis currencies where it has major holdings in, namely the Australian dollar, Indian rupee and Indonesian rupiah. We are reviewing our target price given that sharp depreciation of the regional currencies vs the S$.

Our top pick in the sector is M1, which we recommend a Neutral with a target price of S$2.15 for its attractive dividend of 8%, lower risk to earnings and cash flow as it averts a costly bidding warfare over content.

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