SingTel – CIMB

Positioning for the future

• Volatile stability. We came away from SingTel’s investors’ day with the view that defensiveness is tempered in the short term by its aggressive ambitions in Singapore and volatile currencies.

• Capital management. SingTel has no plans to buy back shares and prefers capital reductions to reduce the number of shares outstanding. It believes there is room to raise its gearing, currently at 1.2x net debt/EBITDA and 0.35x net debt/equity, and will review it when needed.

• Continued aggression in Singapore. We believe SingTel will continue to acquire market share aggressively despite its leadership position in mobile and broadband to position itself for higher multimedia spending by consumers in the future.

• Australia ambitions. We continue to doubt Optus’s ability to pull off the next generation broadband network (NBN) project without the support of larger partners.

• No slowdown in India. Bharti does not expect its growth to be derailed by the economic downturn and does not expect its leadership position to be threatened.

• Further margin compression in Indonesia. Telkomsel expects EBITDA margins to decline 3-5% pts if mobile termination rates are cut. However, it has not felt any impact from plunging commodity prices on usage or subscriber growth.

• Maintain NEUTRAL with an unchanged S$2.72 sum-of-the-parts target price. Despite its historical trough valuations, we believe upside potential will be capped by potential margin pressure in Singapore from aggressive customer acquisitions and volatile regional currencies.

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