SingTel – OCBC

Defensive with growth potential

Targeting wider football audience. SingTel recently unveiled its pricing plans for the upcoming UEFA Champions League, Europa League and Serie A matches next season. Offered via three platforms – on mioTV, online and on mobile, the sign-ups will cost S$15.90/month for access to all three platforms for its subscribers; it also has separate plans for individual platforms should subscribers opt not to take up the all-in-one package. And it has not forgotten about non-subscribers – they can pay S$13/month to watch these matches online or just S$6 per live match. We think the multi-platform approach is great as it enables SingTel to tap the whole market of football fans – well beyond its current mioTV subscriber base of 100k.

Defensive earnings still matter. On the economic front, there are increasing signs that the global recession has probably past its worst point, but the consensus is that the pace of the economic recovery is still expected to remain splotchy. As such, there could still be several quarters of uncertain corporate earnings for most companies. On the other hand, SingTel’s suite of services is likely to remain quite resilient as consumers nowadays have deemed them to be near-essential or even a necessity. SingTel itself has guided for stable FY10 performance, with both Singapore and Australia turning in low single-digit revenue growth.

Growth potential from regional associates. Should there be a fasterthan- expected pick up in the economic recovery, we believe that emerging markets in Asia would be the ones who will benefit the most. We further believe that this would translate into faster growth for SingTel’s regional associates, effectively adding a “recovery angle” to its investment thesis. Another potential positive would be associate Bharti’s much-talked about merger with South Africa’s MTN; this would allow SingTel to extend its reach beyond Asia and with well-established partners. Other catalysts would include possible M&As in the region.

Raising fair value to S$3.49. On the recent leadership change at rival StarHub, we do not believe it will affect SingTel much – while it is the de facto leader in the Singapore market, its importance is likely softened by its potential regional expansion. In light of the firmer regional currencies, we have bumped up our FY10 and FY11 estimates slightly; the recent rebound in the global stock markets has also increased our SOTP fair value from S$3.18 to S$3.49. Coupled with an expected 3.9% dividend yield for this year, we maintain our BUY rating.

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