SingTel – OCBC

Affirms FY10 guidance

Good start to FY10. SingTel reported its 1HFY10 results this morning, which came in ahead of our expectations. Revenue grew 1.9% YoY and 7.9% QoQ to S$3847.7m, meeting 26.1% of our FY10 forecast, while net profit came in at S$945.4m, up 7.7% YoY and 4.6% QoQ, meeting nearly 27.3% of our full-year estimate. Operating EBITDA margin was stable at 29.3%, versus 30.3% in 1QFY09 and 32.2% in 4QFY09.

Singapore operations did well again. Its Singapore business delivered a relatively strong quarter, with operating revenue up 10.3% YoY; main growth came from its IT and Engineering business, which jumped 50% YoY, which included the first-time rollout revenue (S$14m) from OpenNet and the recently-acquired SCS. Its mainstay Mobile business rose 3.6% YoY, driven by growth in data and mobile. Operational EBITDA margin was flat at 41.8% as improved margin at its telco business was diluted by increased revenue contribution from its IT and Engineering business. Going forward, SingTel continues to expect Singapore’s operating revenue to grow at single-digit level; EBITDA margin to remain stable around 36-38%; capex below S$800m; free cashflow to decline slightly.

Australia saw EBITDA margin squeeze. SingTel’s Australia business saw a 12.4% YoY rise in operating revenue, aided by strong mobile revenue growth (+20.6%) as the popularity of the Apple iPhone continued through the quarter. However, due to the iPhone promotions/recontracts, Mobile EBITDA margins slipped by 5ppt to 25%; but management see it as a near-term trade-off to get more higher-value customers. We note that on the corporate side, Optus has also won several big contracts and we expect them to continue to gain traction in this area. For the rest of FY10, SingTel expects Australia’s operating revenue and EBITDA to grow at low singledigit levels; capex around A$1.1b; free cashflow to be stable.

Maintain BUY and S$3.51 fair value. For its associates, SingTel expects both Bharti and Telkomsel (its two largest contributors) earnings to grow in local terms, although it notes that ordinary dividend will be lower. Nevertheless, we continue to expect SingTel to pay out between 45% and 60% of its recurring earnings as dividend this year. While we are keeping our FY10 estimates unchanged, our SOTP fair value rises from S$3.49 to S$3.51 to reflect the higher equity value of its regional associates. Maintain BUY.

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