SingTel – DBS

Would market like the show of support from SingTel?

• SingTel would raise its interest in Bharti AirTel from 30.43% to 31.95%, by paying INR 18-30 bn to Bharti’s parent company.
• This translates to INR 311-519 per Bharti share in our view, compared to the current price of INR 293, implying 7.6x-12.4x FY10 EV/EBITDA
• We expect SingTel to report 2Q10F underlying earnings of S$937m (+17% yoy, -1% qoq) broadly inline with consensus on 11 Nov.
• We would be buyers below S$2.85. Maintain HOLD with revised STP based target price of S$3.15 as we lower our fair value of Bharti.

Implications of Bharti deal. SingTel would pay between INR 18 bn-30 bn for an additional 1.52% stake in Bharti. Given, 3.8 bn Bharti shares, it translates to INR 311-519 per Bharti share. This implies FY10F EV/EBITDA of 7.6x-12.4x and PER of 13.5x-22.4x on our EBITDA and profit of INR 162 bn and INR 88 bn respectively. Given prospects of Bharti’s earnings decline next year, we think, market may not
appreciate the price being paid by SingTel.

Bharti’s results were slightly below consensus, but outlook could be worse than consensus. Bharti’s 2QFY10F net profit of INR 23.2 bn (-8% qoq, +13% yoy) was inline with ours and c.5% below consensus. ARPU decline of 9% qoq was worse than street expectations of 6-7%. We expect significant decline in tariffs as new players (Etilsalat, Telenor, Sistema) deploy lower pricing while smaller players (Aircel, Tata-Docomo, Idea) adopt per second billing to attract subscribers. We are 7%/15% below FY10F/11F consensus earnings for Bharti. We lower our fair value of Bharti to INR306 at 13.5x FY10F PER (prev 345), given our regional PER average of 14.4x/13.3x for 2009/10 respectively

Telkomsel results and outlook slightly better than consensus. Based on PT Telkom’s 3Q09 results, we estimate that Telkomsel had a net profit of IDR 3.6 tr (flat qoq, +34% yoy), attributable to increased market share and forex gains. We expect 20% y-o-y earnings growth in 2009, and our FY09/10 forecasts are 3%/3% higher than consensus. Another positive for SingTel is that IDR and AUD have strengthened against SGD by 2% and 9.8% qoq.

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