SingTel – OCBC

Easing Fair Value to S$3.34

1Q11 results mostly in line. SingTel released its 1Q11 results this morning, with revenue up 11.5% YoY at S$4289.0m; but revenue fell 4.1% QoQ and was also about 3.8% below our estimate, mainly hit by seasonally lower IT and Engineering revenue from NCS and a weaker AUD QoQ. Net profit eased 0.2% YoY to S$943.2m; however, it fell 7.1% QoQ, again due mainly to seasonal factors and lower associate contributions (down 17.8% YoY and 6.9% QoQ); but it was just 1.6% shy of our forecast, as overall EBITDA margin was relatively steady at 29.3%, versus 29.9% in both 1Q10 and 4Q10.

Review of Singapore operations. Mobile revenue grew 13.7% YoY and 3.6% QoQ, driven by increased overseas travel and tourist arrivals; monthly blended APRU also increased further to S$53, up from S$51 in 4Q10, thanks to strong demand for smartphones and higher mobile data usage. While NCS contribution was down 29% QoQ (+6.1% YoY), SingTelalludes to revenue recovery given several major contracts that NCS has won recently. More details were also given for its mio TV segment, which saw a 15% QoQ jump in subscribers to 220k, fuelled by the World Cup and BPL offers; estimated ARPU came in ~S$63.6 but this may have been boosted by one-off World Cup pricing. Overall operational EBITDA margin came in at 38.2%; but it is keeping its 35% guidance for FY11 due to an expected hike in content cost from BPL and NBN initiatives.

Review of Optus and associates. Overall operating revenue grew 2.6% YoY (+1.0% QoQ), driven largely by its mobile business, which rose 6.7% YoY (+1.9% QoQ); it now contributes around 63% versus 60.7% a year ago. Overall EBITDA margin inched up to 24.5% from 23.0% in 1Q10 but still lower than 27.3% in 4Q10 due to seasonality. For the rest of FY11, SingTel has also kept its guidance unchanged.

Associates’ contribution fell 17.8% YoY and 6.9% QoQ; SingTel has kept its guidance largely unchanged except that it now expects Telkomsel’s operating revenue to grow at single-digit (versus high single-digit previously).

Easing fair value to S$3.34. In view of the likely lower associate contribution, we pare our FY11F earnings by 10.3% (FY11F by 6.5%). Although our valuations for its Singapore and Australia businesses are largely unchanged, the softer outlook for both Telkomsel and Bharti will reduce our SOTP fair value from S$3.40 to S$3.34. But as the total return is still over 10%, we maintain our BUY rating.

SingTel – OCBC

Easing Fair Value to S$3.34

1Q11 results mostly in line. SingTel released its 1Q11 results this morning, with revenue up 11.5% YoY at S$4289.0m; but revenue fell 4.1% QoQ and was also about 3.8% below our estimate, mainly hit by seasonally lower IT and Engineering revenue from NCS and a weaker AUD QoQ. Net profit eased 0.2% YoY to S$943.2m; however, it fell 7.1% QoQ, again due mainly to seasonal factors and lower associate contributions (down 17.8% YoY and 6.9% QoQ); but it was just 1.6% shy of our forecast, as overall EBITDA margin was relatively steady at 29.3%, versus 29.9% in both 1Q10 and 4Q10.

Review of Singapore operations. Mobile revenue grew 13.7% YoY and 3.6% QoQ, driven by increased overseas travel and tourist arrivals; monthly blended APRU also increased further to S$53, up from S$51 in 4Q10, thanks to strong demand for smartphones and higher mobile data usage. While NCS contribution was down 29% QoQ (+6.1% YoY), SingTelalludes to revenue recovery given several major contracts that NCS has won recently. More details were also given for its mio TV segment, which saw a 15% QoQ jump in subscribers to 220k, fuelled by the World Cup and BPL offers; estimated ARPU came in ~S$63.6 but this may have been boosted by one-off World Cup pricing. Overall operational EBITDA margin came in at 38.2%; but it is keeping its 35% guidance for FY11 due to an expected hike in content cost from BPL and NBN initiatives.

Review of Optus and associates. Overall operating revenue grew 2.6% YoY (+1.0% QoQ), driven largely by its mobile business, which rose 6.7% YoY (+1.9% QoQ); it now contributes around 63% versus 60.7% a year ago. Overall EBITDA margin inched up to 24.5% from 23.0% in 1Q10 but still lower than 27.3% in 4Q10 due to seasonality. For the rest of FY11, SingTel has also kept its guidance unchanged.

Associates’ contribution fell 17.8% YoY and 6.9% QoQ; SingTel has kept its guidance largely unchanged except that it now expects Telkomsel’s operating revenue to grow at single-digit (versus high single-digit previously).

Easing fair value to S$3.34. In view of the likely lower associate contribution, we pare our FY11F earnings by 10.3% (FY11F by 6.5%). Although our valuations for its Singapore and Australia businesses are largely unchanged, the softer outlook for both Telkomsel and Bharti will reduce our SOTP fair value from S$3.40 to S$3.34. But as the total return is still over 10%, we maintain our BUY rating.

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