SingTel – UBS

Concerns in Indonesia

Telkomsel may be the loser in the competition for data, in our view

In the past two quarters, 70% of revenue growth in Indonesia wireless was from data. We believe this is not a temporary trend and Telkomsel may be the loser in the competition to grow data revenue. We believe the consumer perception that Telkomsel has the best quality wireless network in Indonesia is at risk. Please refer to today’s UBS report, Indonesia Telecommunication Sector: The rise of data by UBS Indonesia telecom analyst Sebastian Tobing for further details.

Negative for SingTel, in our view

SingTel is the 35% shareholder of Telkomsel and 17% of our sum-of-the-parts based price target for SingTel comes from Telkomsel. We believe the market views Telkomsel as one of the growth drivers for SingTel.

Bharti in India also facing difficulties

Bharti, SingTel’s other large overseas associate and potential growth driver, also faces difficulties in the near term. The difficulties are: competition, 3G licence fee and regulatory challenges. We believe the concerns at Bharti and Telkomsel will be an overhang for SingTel shares.

Valuation: lower price target to S$3.15; retain Neutral rating

Reflecting our lower earnings estimates for Telkomsel, we lower our SingTel EPS forecasts for FY2011/12/13 from S$0.266/0.286/0.316 to S$0.255/0.274/0.301. Our price target, based on a sum-of-the-parts model, is lowered from S$3.22 to S$3.15.

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