SingTel – CIMB
Strong performance by Telkomsel
• In line. SingTel’s 1QFY10, when annualised is in line with both CIMB and consensus expectations, both at -0.1% variance respectively. The key features of the results are a strong rebound in margins from Singapore but offset by an equally weak margin from Australia, and strong growth from the associates.
• Strong margin in Singapore. SingTel Singapore’s revenue declined 5% qoq due to a seasonally weaker contribution from the lower-margin IT businesses. This also led to a 4.1% pt qoq rebound in margins. All in, Singapore appears to be trending in line with our forecast.
• High SAC in Australia. The reverse happened at Optus where it saw a 16.7% qoq surge in revenue driven by strong subscriber growth and a 10% qoq appreciation of the A$ vs the S$. A strong take-up of the iPhone led to higher subsidies, which resulted in a 5.9% pt decline in EBITDA margin to 21.3%, its lowest ever.
• Telkomsel was the star. Associate contribution surged 22% qoq, driven by: 1) a 50% qoq jump in Telkomsel’s contribution on the back of its operational strength and 7% qoq increase in the Rupiah, and 2) 21% increase in Bharti’s contribution. Losses from Warid and PBTL were also lower.
• Muted guidance for FY10. SingTel’s guidance was not surprising and very general. It expects Singapore revenue to groww at a single digit level with EBITDA margins at 36-38% vs 37% in FY09. FCF excluding dividends is expected to decline slightly. Similarly, Optus’s revenue and EBITDA are expected to grow at a low single digit level while FCF should be stable. The key drivers are the associates where Telkomsel and Bharti are expected to grow in local currency terms, but dividends from associates are expected to be lower. All in, it appears that FCF should be lower yoy.
• Maintaining recommendation and target price. We are reiterating our UNDERPERFORM recommendation with an unchanged SOP-based target price of S$3.20. We are likely to tweak our numbers upwards a little on the back of our recent upgrade of Telkom Indonesia/Telkomsel’s numbers.