SingTel – Phillip

1Q FY2010 Results

1Q FY2010 Results. SingTel reported better than expected results for 1Q FY2010. Operating revenue was S$3,848m (+1.9% yoy) and net profit was S$945m (+7.7% yoy). In fact, its Singapore and Australian operations reported double-digit growth in revenue. However, group revenue rose only by 1.9% in Singapore dollars due to the depreciation of the Australian dollar. Moreover, the regional mobile associates, led by Bharti and Telkomsel, posted strong gains in total pre-tax profits of S$647m (+13.4% yoy) even though the Singapore dollar appreciated against most regional currencies.

Profit margin. Net profit margin decreased from 25.3% in 4Q FY2008 to 24.6% in 1Q FY2009. This was due to the increase in operating expenses mainly from the inclusion of Singapore Computer Systems (SCS) in its financial statements.

Merger between Bharti and MTN. Currently, Bharti and South Africa’s largest telecommunications company, MTN, are in discussions and the agreement extends up to 31 August 2009. During the briefing, SingTel has declined to disclose details about the transaction. Currently, SingTel has a 30.4% equity interest in Bharti. We believe that SingTel will try to increase its stake in Bharti to avoid any dilution in interests if the merger is successful.

Listing of NCS. SingTel has acquired SCS and include it as part of NCS. We believe that there is a possibility that SingTel may list NCS after it has reorganised the operations of NCS. This will enable SingTel to raise funds that may be used to increase its stakes in the regional mobile associates, for future acquisitions or distribution as dividends to shareholders.

FY2010F Outlook. The company expects the operating revenue for the Singapore and Australian businesses to grow at single-digit level and low single-digit level respectively. Moreover, among its regional mobile associates, Bharti and Telkomsel are likely to see growth in earnings. Nevertheless, the contributions from the regional mobile associates are likely to be affected by the depreciation in the regional currencies.

Maintain BUY recommendation and target price at S$3.80. We rate SingTel as buy and maintain the target price at S$3.80 because of its good financial performance. Furthermore, SingTel has highlighted that the worst is over and it is monitoring the recovery of its operations. In fact, we continue to like SingTel as it has established operations in Singapore and Australia as well as strong profit contributions from its regional mobile associates.

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