SingTel – DBSV
Reversal of traditional role
• Mature markets to outshine regional associates in 4Q10F – a reversal of traditional role.
• SingTel may report 4Q10F profit of S$973m (+1% yoy, – 2% qoq) in line with street expectations. Special dividends cannot be ruled out, in our view.
• FY11F earnings lowered by 2.5% due to weaker than expected Telkomsel. TP lowered to S$3.40
• BUY quality blue chip at 12x PER (Hist. average 13.4x)
Expect in line 4Q10 results on 13 May, despite weak associate numbers. Consensus has not caught up with the strong Singapore earnings (up 7% yoy) and Optus earnings (up 17% yoy in AUD) in 9M10, attributed to exclusive iPhone advantage in Singapore and decrease in debt & interest expenses at Optus. While we know that Bharti and Telkomsel are down sequentially in 4Q10F, Singapore and Optus should be up sequentially in a seasonally strong 4Q10F.
Growth from regional associates and Optus. Despite potential single-digit earnings decline at Bharti, associate contribution should witness low-single digit growth, thanks to (i) lower losses at Warid, PBTL and (ii) single-digit earnings growth at Telkomsel, AIS. Optus earnings are expected to register single digit growth (in AUD terms) helped further by strong AUD. Singapore earnings may not grow due to high content costs and the launch of National Broadband Network.
Special dividends cannot be ruled out with 4Q10F results. We believe that Bharti would manage its debt (for Zain acquisition) through free cash flow and listing of tower subsidiary Bharti Infratel (rather than raising equity at AirTel level). This leaves SingTel with the flexibility of paying out additional 8-10 Scents in special dividends, in our view.