SingTel – CIMB

3Q08 results preview: diluted by regional currencies

SingTel is expected to announce 3QFY09 results on 9 Feb 09. We expect its core net profit to further decline to S$760m-790m from S$801m in 2QFY09, on the back of an expected 8-12% qoq and 9-13% yoy decline in revenue, a 1-2%-pt increase in EBITDA margins qoq, and flat qoq but 20-28% yoy decline in associate contributions.

Operational improvements at subsidiaries. We believe EBITDA margins rebounded in Singapore and Australia after plunging in 2QFY09 on the back of high subsidies for the iPhone. Subsidies are expected to decline qoq in 3QFY09. In Singapore, mobile competition had eased in 4Q08 after four quarters of intense competition.

Improved results for key associates. Bharti announced a commendable set of results, with revenue surging 7% qoq and EBITDA margins gaining 3.3% pts. After a sharp contraction in the previous quarter, we expect Telkomsel’s revenue and EBITDA margins to rebound in 4Q08 on the back of higher tariffs, lower network congestion and festivities. On the other hand, Globe Telecom’s 4Q08 PBT declined qoq.

Regional currency weakness. The Australian dollar, Indonesian rupiah and Indian rupee depreciated 25%, 20% and 8% qoq respectively against the S$ during the quarter, effectively wiping out all operational gains at these units. SingTel’s units in these countries contributed an estimated 59% of FY09 PBT.

Weaker regional currencies wiped out S$86m (S$36m due to A$, S$31 due to Rp and S$19m due to Rs) or about 11% from SingTel’s core net profit. Excluding the impact of weaker currencies, SingTel’s core net profit would have rebounded about 5% qoq.

Valuation and recommendation

Maintain OUTPERFORM and sum-of-the-parts target price of S$3.10. Catalysts for a re-rating could include:
• A$, Rs and Rp appreciation vs. the S$.
• Further signs of easing competition in Singapore.
• Strong qoq results at its key units, namely Telkomsel and Bharti.
• A bottoming out of its earnings in 3QFY09, given the turnaround of regional currencies and lower subscriber acquisition and retention costs in Singapore.

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