SingTel – OCBC
Paring fair value to S$3.40
Stronger 4Q10 results due to forex. SingTel posted a much stronger-than-expected set of 4Q10 results. Revenue jumped 25.4% YoY (+0.5% QoQ) to S$4470.6m, or nearly 32% ahead of our forecast, driven by robust 13% growth in Singapore, while Optus’ revenue grew by 6.1%; the steep 26% strengthening of the AUD also played a large part. Net profit climbed 12.4% YoY and 2.5% QoQ to S$1015.2m, or nearly 50.8% above our estimate; this after associate earnings grew by 6.1% YoY, boosted by the significant 15% appreciation of the IDR and other fair value gains on mark-to-market valuations of foreign currency denominated liabilities of associates. For
the full year, revenue rose 13% to S$16,870.9m, or 6.8% ahead of our forecast, while net profit also climbed 13% to S$3907.3m, or 9.6% above our estimate. SingTel declared a final dividend of 8 S cents per share, bringing the total dividend for FY10 to S$0.142, or a payout ratio of 58%.
Outlook for Singapore mixed. For FY11, SingTel expects its Singapore operating revenue to grow at mid single-digit level, driven by higher mobile, IT & Engineering and mio TV revenue; but EBITDA margin is expected to decline to around 35% and EBITDA to grow within low to mid single-digit range. We suspect that this is mainly due to its higher Pay TV content cost (for new sports packages it will start broadcasting from June) plus continued customer acquisition and rollout costs. Capex is estimated at around S$830m, while free cash flow is expected at around S$1.1b.
Australia operations likely to remain stable. For Australia, SingTel expects both operating revenue and EBITDA to grow at mid single-digit levels; capex is estimated at around A$1.2b, which it will use mainly for investments in its mobile network, while free cash flow is expected to be above A$1.0b. Associates-wise, SingTel expects their ordinary dividends to increase, with higher profits reported by Telkomsel in 2009.
SingTel also expects a dividend payout of around 45-60% of underlying net profit.
Reducing fair value to S$3.40. In line with the latest guidance and fresh forex assumptions, we raise our FY11 revenue estimate by 10.7% and our earnings forecast by 4.3%. But to account for the recent declines in the market value of its associates, we pare our SOTP-based fair value from S$3.51 to S$3.40. Given that there is still 14.5% upside from here, we maintain our BUY rating.