SingTel – DB

Ten things to watch in 2009

2009 should be busy for STel; 10 key issues to focus on
We believe 2009 will be a busy year for STel as it is involved in the S’pore NBN NetCo build, bids for the Australian broadband network, competes for the S’pore EPL rights, deepens its Associate relationships and potentially uses reduced telco valuations to expand internationally. In this note, therefore, we detail the ten issues we will be watching in 2009. We maintain Buy for the TP upside and STel’s increasingly defensive nature (reduced Sing/Australia valuation & NAV discount).

2009 events in Australia & S’pore should focus on NBNs, costs & the EPL
Australia and S’pore 2009 themes are likely to be dominated by the national broadband projects. Information on both projects currently remains scarce and as more details are released throughout 2009, estimates and sentiment may be impacted. In addition, both operations will focus on cost control (watch headcount as the most visible indicator of this), while NCS expansion in S’pore is likely to significantly dilute margins. Finally, we expect STel to increase content acquisition and to bid aggressively for the English Premier League TV rights in 3Q09.

And internationally, in 2009 watch the Assoc relationships, PBTL and M&A
We will be watching the strength of STel’s existing Associate relationships in 2009, which we expect STel to deepen – this may involve a strengthening of the Bridge Alliance. In terms of STel’s portfolio, attempts will be made to re-invigorate PBTL through broadband wireless, while 2009 may be the year that the SingPost asset is finally disposed and the Taiwan interest exited. Finally, if STel is serious about international expansion, 2009 is likely to be active given recent valuation declines but as such, investors should not expect any accelerated returns.

Still attractive given TP upside, NAV discount and Sing/Au valuation; Buy
Our S$3.23 SOTP TP is based on S’pore S$0.88/share (DCF: 7.1% WACC, 0% g), Optus S$0.78/share (DCF: 9.6% WACC, 1% g), DB covered listed Assocs at TP, non-DB covered listed Assocs at market value and investment value for others. Given current valuations, the NAV discount and the reduced Sing/Australia fwd PE we recommend Buy. Risks to our view and Buy rating include adverse FX trends, increasing market competition and an emerging market sell-off.

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