SingTel – Phillip
2Q FY09 Results. SingTel reported 2Q FY08 operating revenue of S$3,891m (+5.3% yoy) and net profit of S$868m (-12.1% yoy). Revenue increased due to the growth of the Singapore and Australian postpaid mobile market.
However, net profit was lower because of the introduction of iPhone 3G, the depreciation of the regional currencies and weaker earnings from the regional mobile associates. Excluding the depreciation of the Australian dollar and the regional currencies, net profit would have declined by a smaller amount of 5 percent. It also announced an interim dividend of 5.6 cents per share. This was the same as the interim dividend declared in FY08.
Performances. In Singapore, SingTel continued to post double-digit revenue growth of 10.3 percent to S$1.33 billion due to success in gaining market shares in the data and mobile businesses. In particular, this was boosted by the successful launch of iPhone 3G on 22 August 2008. Moreover, in Australia, Optus achieved an increase in operating revenue of 6.8 percent to A$2.06 billion despite a highly competitive market.
The regional mobile associates posted weaker-than-expected results for the quarter. Pre-tax earnings dropped 25.5 percent to S$461m due to the depreciation of 8 percent to 17 percent in the regional currencies and poor performances from Telkomsel, Globe and Warid.
FY09 Outlook. Management expects its operating revenue for the Singapore and Australian businesses to grow. It also anticipates the overall pre-tax earnings contributions of the region mobile associates to decline for FY09. Furthermore, there will be negative impact on the revenues and profits from the depreciation of the Australian dollar and the regional currencies against the Singapore dollar.
Maintain BUY recommendation, target price reduced from S$4.01 to S$3.86. Due to the lower-than-expected profit from SingTel, we have reduced the target price to S$3.86. We anticipate that the regional mobile associates will continue to face competition in their respective regional markets. Moreover, the strengthening of the Singapore dollar against most currencies will result in lower profits for Optus and the regional mobile associates.
Nevertheless, SingTel remains a BUY for investors. This is because its business continues to grow in Singapore and Australia with revenue contributions from its regional mobile associates.