SingTel – OCBC

Regional growth story likely intact

Slightly more upbeat outlook. SingTel – after posting an upbeat set of 2QFY10 results recently – has modestly upgraded its guidance for FY10 ending Mar 2010. For Singapore, SingTel expects its EBITDA to grow at low single-digit level (vs. stable previously), likely aided by the continued growth in data services and strong take up of the new Apple iPhone 3GS; but EBITDA margin to decline to around 36-38% from 40% previously. It has maintained other guidance; capex to be below S$800m. For Australia, SingTel expects the operating revenue and EBITDA to grow at low singledigit levels; capex of around A$1.1b; and free cashflow to remain stable. 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.

Game-changer in Pay TV arena. Another noteworthy development would be SingTel’s Pay TV segment – it managed to secure the coveted EPL (English Premier League) 2010-2012 season broadcast rights as well as exclusive sports content from ESPN and STAR Sports (from mid-2010). While we think that it may be a loss leader for SingTel, the added sports content should give its fledging Pay TV business a good boost and also aid its transformation from a plain vanilla telco to a multi-media solutions provider. We believe that having good content may be the key to competing effectively when the NBN rolls out from mid-2010.

NBN may also bring added competition. However, the NBN will also bring additional competition, especially to the corporate realm where it currently has a clear dominance. But we understand that SingTel already has plans in place to retain its existing customers or increase its “stickiness” by offering more comprehensive end-to-end services. We can also expect its recent acquisition of SCS (Singapore Computer Systems) to give it an added edge in the fixed network services segment.

Maintain BUY and S$3.51 fair value. Besides potentially riding on the faster recovery of its regional associates, we believe that SingTel’s growth proposition via acquisitions remains intact – management remains keen to make strategic acquisitions in not only pure carriers but also other segments to boost its service offerings. On the dividend front, we continue to expect SingTel to pay out between 45% and 60% of its recurring earnings as dividend this year. Maintain BUY with a SOTP-based fair value of S$3.51.

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