SingTel – CIMB

Positives priced in, but not the negatives

• A mixed bag. SingTel’s 1QFY10 results conference call revealed some positives – namely the strong growth in wireless broadband and iPhones, but also a negative – competition in Australia could pick up following the Vodafone and Hutchison merger.

• Strong wireless broadband and iPhone take-up. Wireless broadband penetration almost doubled among SingTel’s Singapore and Optus’s mobile users over the last 6 months. It still in a nascent stage and the strong growth should continue. Optus’s iPhone subscriber base surged 50% qoq despite being launched 1 year ago. Equally important is 53% of the activations were from users new to Optus and they generate ARPUs of 1.5-2x than that of regular postpaid users.

• Competition clouds looming in Australia? Vodafone-Hutch Australia (VHA) intends to displace Optus as the second largest player by Dec 2011, signalling a rise in competitive intensity. VHA commands a 26% subscriber market share vs Optus’s 33% at end 1H09.

• Upping forecast, lowering TP. We are raising our FY10-12 core net profit estimates by 0.8-2% on the back of our recent upgrade of Telkomsel’s numbers. However, we are cutting our SOP-based target price by S$0.10 to S$3.10 due mainly to revising downwards our valuation for Bharti, based on consensus numbers.

• Maintain UNDERPERFORM as we feel that SingTel’s positives have mostly been priced in and feel that any negative newsflow could cause the stock to de-rate. Our concerns are the rising competition in India and Australia, and the upcoming auction for the BPL broadcast rights for both SingTel and StarHub.

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