SingTel – Phillip

3Q10 Results

SingTel reported 3Q10 operating revenue of S$4,450m (+20.2% yoy) and net profit of S$991m (+24.0% yoy). We were impressed by its strong performance as revenue was 3.0% above our estimate of S$4,321m while net profit was 3.6% higher than our estimate of S$957m. SingTel’s Singapore operations posted revenue growth of 1.5% to S$1,530m. Its Australian unit, Optus, reported revenue increase of 4.8% to A$2,302m. In Singapore dollar terms, Optus revenue rose by 33.1% to S$2,920m due mainly to the appreciation of the Australian dollar. Furthermore, the share of regional associates’ earnings increased by 22.0% to S$592m due to the improvement in Telkomsel’s performance. 

Greater market share in Pay TV

SingTel has won the rights for Barclays Premier League (BPL) matches for three years from August 2010. It is offering subscription for BPL matches at an attractive price of S$23 per month excluding goods and services tax (GST). We expect about 90,000 football fans to switch from StarHub to SingTel. At the same time, SingTel is likely to introduce more programs on its mioTV to boost its customer base and grab market share from StarHub. 

Listing of Optus

There has been market speculation that SingTel may list Optus on the Australian stock exchange. We feel that it is likely to happen only if SingTel requires the funds for regional expansion such as acquiring a stake in a mobile telecommunications provider in an emerging country. Otherwise, SingTel has sufficient cash to maintain its operations. 

FY2010F Outlook

The company expects the operating revenue for the Singapore and Australian businesses to grow at low single-digit level. The earnings of Bharti and Telkomsel are also likely to improve in local currency terms. It anticipates the regional mobile associates to announce lower ordinary dividends. 

Maintain BUY recommendation and fair value at S$3.52

SingTel has reported better-than-expected results for 3Q10. It is also expected to benefit from the recovery of the global economy. We like SingTel for its growth prospects as its Singapore and Australian operations as well as regional mobile associates continue to post increases in revenue and profit. Therefore, we maintain our buy recommendation. Based on the discounted cash flow model, the fair value is S$3.52.

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