SingTel – DBS

Spectacular show

At a Glance

• Underlying net profit of S$959m was 13% ahead of ours and consensus expectations.
• Singapore and Australia surprised with significant EBITDA improvement both sequentially and annually.
• We are revising our FY10F by 6% expecting Singapore and Australia to continue to deliver. Upgrade to BUY with revised SOTP target price of S$3.05.

Comment on Results

Underlying net profit of S$949m (-0.9% yoy) was up 15% qoq mainly due to three reasons (i) Singapore EBITDA of S$578m (+3% yoy) improved 3.1% sequentially despite weak economy as corporate data and mobile services showed no weakness while costs were lower (ii) Excluding tax credits, tax rate for Singapore was around 10%, lower than our 17% expectations (iii) Optus EBITDA (+8.5% yoy) improved 14.5% sequentially due to significant improvement in both revenue and margins in the mobile segment.

Management guidance for FY10F

Singapore guidance. Single digit growth in Singapore revenue, 36- 38% EBITDA margins lower than 39% in FY09, implying flat EBIDTA. Capex below S$800m compared to s$736m in FY09, as such management expects slight decline in free cash flow.

Australia guidance. Low single digit growth in operating revenue and EBITDA, with growth in mobile and wireless broadband. Capex of about A$1.1b, mainly in mobile network, compared to A$1.0b in FY09. Free cash flow is expected to be stable.

Associate guidance. Growth in local currency earnings of Bharti and Telkomsel. Management expects lower ordinary dividends from the regional mobile associates as Telkomsel and Globe reported lower profits in 2008.

We have revised up our FY10F and FY11F estimates by 6% each. Upgrade to BUY with revised TP of S$3.05.