SingTel – DBS
Competition, capex and currency
Street expectations from Bharti are too high and likely to disappoint in the wake of heightened competition in India. We cut our SingTel’s FY10 earnings forecast by 5% and our revised numbers are 9% below consensus, suggesting that earnings may decline for another year. Maintain FULLY VALUED with lower target price of S$2.25. 4Q09 results are likely to be lower than street expectations. Another risk is dividend cut due to high capex for National broadband Network in Australia.
Where we differ? (i) Street is feeding 28-30% YoY net earnings growth (INR) from Bharti into SingTel FY10 numbers, despite Bharti’s consensus numbers suggesting only 18% growth, which is again higher than our 13% forecast. Weak share price of Bharti also suggests that consensus could be behind the curve (ii) Street may have ignored the worsening outlook for Indian rupee (iii) Street expects single-digit growth for Telkomsel, compared to our forecast of slight decline.
Lowered FY10 pre-tax profit for associates by 3.3%. Our new forecast for SGD/INR is 35 (prev 32) due to high fiscal deficit of India and credit rating downgrade by rating agencies. Besides, we project AIS to register 3% YoY decline from 5% growth earlier.
Reduced FY10 EBITDA estimates for Optus by 11%. We have adjusted AUD/SGD exchange rate to 1.00 from 1.12, as AUD may not rebound back due to weaker than expected
Lowered FY10 EBITDA estimates for Singapore by 3.5%. We forecast it to be flat YoY as potential decline in roaming revenues and prepaid subscriber base may offset benefits from lower competition and higher data revenue due to iPhone launch.
Maintain FULLY VALUED, with lower SOTP-based target price of S$2.25. In 4Q09, we expect net underlying profit of S$826m (3Q09 was S$838m) versus consensus’ S$887m, as (i) Bharti faces headwinds due to tariff wars from Rcom & Vodafone (ii) INR & IDR have deteriorated further. Another risk is that SingTel could limit its payout to 45% of earnings, in case of winning NBN award in Australia, implying 4% yield.