SingTel – CIMB

The planets are aligning

• Falling risks and improving growth prospects. We believe SingTel’s outlook and risk profile continue to improve across the board.

• Lower risks at Optus. The Australian government’s decision to build the country’s broadband network has lifted concerns about Optus possibly being awarded the project, which would stretch the group’s finances. Also, the proposed merger between Vodafone and Hutchison Australia should rein in competition.

• Improving prospects in Indonesia. Telkomsel had added users at a faster clip in the first two months of 1Q09 despite seasonal weakness. Also, industry tariffs are creeping up, supporting our view that competition continues to pull back.

• Easing competition in India. We do not believe competition in India, which heated up in January, is sustainable. In fact, there are signs of easing price competition.

• Strengthening regional currencies. The market is expecting the Singapore government to allow the S$ to depreciate to support the ailing economy. This should benefit SingTel as it derives 72% of its PBT from overseas. The A$ and Indian rupee have appreciated 8% and 6% against the S$ in the last two months.

• Maintain OUTPERFORM, though we have lowered our FY09-11 core net profit estimates by 0.1-2.5% and sum-of-the-parts target price by 5cts to S$3.05, mainly after lowering our numbers for Bharti. Key re-rating catalysts could include qoq improvements in core net profits at its key units, strengthening regional currencies and further signs of an easing price war in India.

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