SingTel – CIMB
• Facing headwinds. We maintain our UNDERPERFORM on SingTel following our recent visit as the telco faces de-rating catalysts in the medium term except that dividend payouts should remain high, in our view. Concerns over Bharti’s gearing and earnings dilution, margin pressure in Singapore and Telkomsel’s poor performance will likely weigh down on SingTel. In the longer term, we continue to see SingTel benefiting from NGNBN. We also believe Bharti’s acquisition of Zain Africa will effectively shut SingTel out of a direct foothold in Africa. We maintain our earnings forecasts and sum-of-the-parts target price of S$3.00.
• Prefers to raise its stakes. SingTel still prefers to raise its stakes in its associates. However, we gather that consolidation could happen in Pakistan which suffers from stiff competition and political uncertainties.
• Dividend payouts likely to remain high. We believe SingTel will continue to pay dividends at the upper bound of its policy of 45-60% given a lack of imminent sizeable acquisition targets. Bharti’s acquisition of Zain Africa should effectively preclude SingTel from trying to acquire a direct stake in an African telco group, if it wants to avoid straining its relationship with Bharti
• Beneficiary of NGNBN. We continue to believe that SingTel will be a net beneficiary of NGNBN, namely from monetising its passive assets in 2014. In the medium term, SingTel will benefit from fixed and revenue share payments from OpenNet.