SingTel – CIMB

Ringing loudly again

• Raised to Outperform from Neutral. We are upgrading SingTel to OUTPERFORM as the factors that led to a sharp de-rating of the stock – risk aversion to emerging market assets and their currencies and stiff competition in Singapore and Indonesia – are receding. Bharti continues to gain market share and is a key earnings driver for SingTel. SingTel’s high trading liquidity and exposure to regional Tier-1 cellcos make it a highly defensive stock to ride out the recessionary environment. However, M1 remains our top pick in Singapore for its very attractive dividends.

• Falling risks. SingTel should benefit from receding aversion towards emerging market assets and their currencies which peaked in Nov 08. Some 65% of its sumof- the-parts valuation and 57% of its FY10 PBT are attributable to its investments in emerging markets, while Optus in Australia contributes 15% to both. We believe that competitive heat in Singapore will peter out in the current recessionary environment as telcos strive to protect cash flows.

• Telkomsel turning around; Bharti gaining market share. Competition in Indonesia is easing as Excelcomino (XL) has largely exhausted its ability to undercut prices by surprise. Bharti is poised to entrench its dominance thanks to its expansion to rural areas.

• Maintaining forecasts; higher target price. We are maintaining our forecasts as regional currencies are broadly within our assumptions. We expect FY09 earnings to bottom out with a 16% contraction before growing by an estimated 8% in FY10. However, we raise our target price to S$3.10 from S$2.72, after removing our 10% discount for overseas assets earlier attached on account of currency volatilities.

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