SingTel – CIMB
Results are secondary, watch the rising risks in India
• In line. SingTel’s FY10 core net profit was exactly in line with both CIMB and consensus estimates. It declared final DPS of 8 cts to total 14.2cts or 58% payout, slightly ahead of our forecast but within its policy of 40-60%. The results are characterised by a higher mix of IT and Engineering revenue in Singapore, offset by seasonal weaknesses in their mobile divisions. Associate contribution declined mainly because of Telkomsel. Maintain our forecast, UNDERPERFORM recommendation with a SOP-based target price of S$3.30 for now pending its conference call later this morning. No surprises from SingTel’s FY11 guidance. We see downside to our target price, mainly stemming from Telkomsel and Bharti. Likely factors to depress share price are rising content costs in Singapore, regulatory risks in India and earnings dilution from Bharti’s acquisition of Zain Africa.
• Normal seasonal weakness. Revenue was flat qoq reflecting the seasonal weakness in both consumer and business customers. Singapore’s revenue rose 7% qoq mainly on lumpy IT and engineering revenues, while that of Optus fell 3% qoq.
• Weaker associates. Associate contribution fell 5% qoq mainly because of a 14% decline in Telkomsel’s contribution. The Indonesian cellco was affected by competition in data and SMS and lost market share to Indosat and XL. Bharti’s performance was surprisingly resilient despite the cutthroat competition. However, the soaring 3G bids in India which crossed the US$3.2bn mark of more than four times the reserve price, new proposals by the Indian government that slaps more costs on spectrum and earnings dilution from Bharti’s acquisition of Zain Africa.
• No surprises from FY11 guidance. SingTel expects Singapore’s revenue to grow in the single digit yoy, but expects EBITDA to grow in the low to single range due to higher content and customer acquisition costs for mioTV. Optus expects to grow its revenue and EBITDA in the mid single-digit levels. SingTel expects Bharti’s earnings to be diluted from the financing costs for ain and the investment in 3G spectrum. We think there is downside risk to Telkomsel’s guidance of high single digit levels for its revenue growth, given its poor 1Q10.