SingTel – Phillip

FY2010 Results

• FY2010 revenue of S$16,871m, net profit of S$3,907m

• Strong performances by Singapore and Australian operations as well as regional mobile associates

• Maintain buy recommendation with fair value reduced from S$3.52 to S$3.43

FY2010 Results

SingTel reported FY2010 operating revenue of S$16,871m (+13.0% y-y) and net profit of S$3,907m (+13.3% y-y). Revenue was 0.2% below our estimate of S$16,906m while net profit was 1.8% above our forecast of S$3,837m. It announced a final dividend of S$0.08 per ordinary share in FY2010, which was higher than S$0.069 in FY2009. This brought the total dividend for FY2010 to S$0.142 compared to S$0.125 in FY2009.

The revenue from its Singapore operations increased by 8.1% to S$5,995m while the revenue from Optus rose by 7.5% to A$8,949m. Furthermore, the share of ordinary earnings from the regional mobile associates was better by 19.2% to S$2,420m.

FY2011E Outlook

SingTel expects the operating revenue for the Singapore and Australian businesses to grow at mid single-digit level. For its Singapore operations, it anticipates EBITDA to fall within low to mid single-digit range. Furthermore, it expects earnings from Bharti to be diluted by its acquisition of Zain and investment in 3G spectrums. Moreover, Telkomsel’s revenue is likely to grow at single-digit level with a slight drop in EBITDA margin. The earnings will continue to be affected by fluctuations in regional currencies.

Greater competition in Singapore and India

We expect SingTel to encounter greater competition in FY2011E. It mentions that it is spending more money to purchase content programs for mioTV so that it can attract a greater number of subscribers. Furthermore, there are connection costs to ensure that mioTV subscribers have access to set-top boxes. There will also be higher acquisition costs to ensure that it maintains its lead in the mobile and broadband market. Besides, IDD rates will drop due to more competition by other telecommunications operators. At the same time, we would like to highlight that Bharti faces stiff competition in the Indian mobile market and we project growth of only 2% in its revenue. As a result, we have reduced the earnings forecast by 5.6% 9.2% and 9.4% to S$3,972m, S$4,141m and S$4,179m in FY2011E, FY2012E and FY2013E respectively.

Maintain Buy recommendation and reduce fair value from S$3.52 to S$3.43

We believe that SingTel will be innovative and beat its competitors in the markets where it has an interest. In fact, we expect growth of 9.3% and 8.3% in the revenue for its Singapore and Australian operations respectively in FY2011E. However, for the regional mobile associates, we expect growth of only 2.7% in the share of profits to S$2,514m for FY2011E due to greater competition. We maintain our buy recommendation on account of SingTel’s competitive edge in many of the regional markets. As we have reduced our earnings estimates, the fair value has been reduced from S$3.52 to S$3.43 based on the discounted cash flow model.

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