SingTel – BT

Clouds fading away

SingTel has underperformed STI by 6% year to date. The good news is that regional currencies have rebounded back and risks due to Aussie National broadband Network (NBN) have subsided. The bad news is that Bharti witnessed its first ever market share decline in March 09. With more positives than negatives, we raise our FY10 earnings forecast by 6% but our numbers are still 3% below consensus. Upgrade to HOLD with revised target price of S$2.75, incorporating higher valuation for regional associates. We would be monitoring Bharti’s results and outlook on 30 Apr, for further update on SingTel.

The good news (i) Regional currencies (AUD and IDR) have rebounded back by 8-10% versus SGD in the hope of broader economic recovery, which is inline with our house view of recovery in 2H 2009 (ii) Aussie government decided to build NBN itself, which implies that SingTel dividends are secure, as it does not have to commit funds for NBN, in case it had won the award.

And the bad news (i) Latest data released by Cellular Operator association of India (COAI) shows that Bharti’s GSM market share declined for the first time in March 09, from 33.5% in Dec 08 to 32.5% in March 09, as Vodafone, BSNL and Reliance increased their market share (ii) Telkomsel has been gaining market share in Indonesia, but ARPU may weaken in ex-Java region, which account for more than half of its business, due to lower usage.

4Q09 earnings preview We expect SingTel to report net underlying profit of S$826m (-15% yoy, -1.5% qoq) on 14 May 09, lower than consensus’ S$887m, due to (i) impact of weak AUD, INR & IDR during the quarter (ii) lower roaming revenue in Singapore. (iii) Bharti faces headwinds due to tariff wars.

Upgrade to HOLD with revised target price of S$2.75. We have replaced market price of associates with target prices to reflect higher risk appetite. We narrowed holding company discount to 5% from 10% previously to reflect lower currency risks.

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