SingTel – AmFraser

Optus and Telkomsel to boost 3QFY10 results

• SingTel will report 3QFY10 results on 9 February. We expect a hefty boost to earnings from effects of forex movements. Off a low base in 3QFY09 – when all its overseas contributions were hit by adverse movements in exchange rates – we expect SingTel to report strong YoY growth of at least 18% (i.e. S$940mil net profit) for 3QFY10.

• On the upside, strength of the Australian dollar (A$) and Indonesian Rupiah (IDR) against the Singapore dollar (S$) bodes well for contributions from wholly-owned Optus in Australia and 35%-owned Telkomsel in Indonesia. YoY, the A$ surged 27% and IDR appreciated 7%, on average for October-December 2009.

• In addition, contributions from Telkomsel will be on back of significant turnaround in earnings, as 3QFY09 was an extreme low point due to intense price wars, which has since abated.

• In 3QFY09, Telkomsel accounted for 13% of SingTel’s earnings, Optus contributed a fifth, while operations in Singapore made up 37%.

• On average, the S$ strengthened about 2%-3% YoY against the Indian Rupee (INR), Thai Baht (THB) and Philippine Pesos (PhP). Adverse impact will be felt most from Bharti’s contribution. In 3QFY09, Bharti accounted for a hefty 21% of SingTel’s earnings.

• Already, Bharti’s earnings growth has whittled to a mere 2% for 3QFY10 (reported 22 January) with competition heating up in India – a far cry from 20%-30% growth enjoyed in the past. A hike in SingTel’s holdings from 30.43% to 31.95% from November 2009 represents about 0.5% boost for 3QFY10.

• QoQ, we expect SingTel’s performance to be lacklustre over a high base in 2QFY10. Benefits from forex movements will be less felt as the A$ appreciated a moderate 6% QoQ with the IDR at a mere 2% – with marginal downside bias from INR, THB and PhP rates.

• SingTel’s third-tier telco associates – PBTL in Bangladesh and Warid Telecom in Pakistan – which are still in the red, will see losses dragged further by adverse forex movements. The S$ rose 7% and 12% against Bangladeshi Dhaka (BDT) and Pakistani Rupee (PKR) YoY, respectively. QoQ, S$ rose 3%-4% against these currencies.

• Maintain HOLD rating with fair value at S$3.05/share.

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