SingTel – AmFraser

Stronger S$ to mute overseas earnings growth in 1HFY10

• We expect SingTel Ltd’s (SingTel) upcoming 2QFY10 (YE March) and 1HFY10 results to be muted by the strength of the Singapore dollar (S$) against most regional currencies.

• Telco earnings from overseas made up 64% of SingTel’s 1HFY09’s net profit of S$1.75bil. Significant contributors are wholly-owned Optus in Australia with 18%, 30.4%-owned Bharti Airtel in India with 23% and 35%-owned Telkomsel in Indonesia with 16%. Rest comprises 21.4%-owned AIS in Thailand, 47.3%-owned Globe Telecom in the Philippines, and to a negative extent from losses at 45%-owned PBTL in Pakistan and 30%-owned Warid Telecom in Bangladesh.

• Growth in 2QFY10 earnings for SingTel on YoY comparison will be dampened, as movements in the S$ ranged as such: +1% against A$, +5% against Indonesia Rupiah, +7% against Indian Rupee, +3% against Philippine Peso and -3% against Thai Baht.

• For SingTel’s 1HFY 10, dampening effect on growth YoY will be felt more, as movements in the S$ in 1HFY10 over 1HFY09 ranged as such: +7% against A$, +5% against IDR, +8% against INR, +3% against PhP and -2% against THB.

• But better 1HFY10 performances at Telkomsel and Bharti will save the day. Off a depressed April-September performance last year, Telkomsel enjoyed a robust 34% YoY growth for April-September 2010 and net profit of IDR 7,243bil (S$1bil). Due to a weaker 2QFY10, Bharti’s 1HFY10 net profit grew 20% YoY to INR 48,883bil (S$1.5bil).

• Flipside, a QoQ comparison shows up best for its overseas telco contributions. S$ is mostly softer: -6% against A$, -3% against IDR, about flat against INR and THB, and +3% against PhP.

• In particular, the translation effect will not worsen contribution from Bharti’s weaker 2QFY10 further. While Bharti has reported 16% YoY net profit growth for 2QFY10 to INR 23.7bil, this represented a fall of 6% over 1QFY10.

• We expect 2QFY10 as well – to be the weakest quarter at Optus, in similar vein to operations in Singapore, mainly due to upfront costs for launch of new model iPhone 3GS (a repeat of last year’s trend). Thankfully, the 6% depreciation in S$ will help boost Optus’s contribution.

• On a HoH comparison, 1HFY10 earnings will show a stronger pick up over 2HFY09 as the S$ trended as such: -16% against A$, -6% against IDR, +1% against INR and THB and +3% against PhP.

• All that said, we expect SingTel to report 1HFY10 net profits of at least S$1.9bil. SingTel is scheduled to release results next week – 11 November.

• On a separate note, SingTel will increase its 30.43% stake in Bharti Airtel to 31.95% on 12 November 2009, at a consideration that will range from Indian Rupee 18.1bil to – 30.1bil. Increase represents a 1% boost to SingTel’s earnings.

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