SingTel – AmFraser

Rough patch for Associates, forecasts and fair value cut

• SingTel’s 1QFY11 net profit came in flat YoY at S$943mil. Earnings improved for Singapore and Australia operations, but group results were dragged down by lower contribution from associates.

• Associate contribution fell 16% YoY to $541mil, making up 41% of EBIT (versus 49% in 1QFY10). This was largely due to a hefty 23% fall in contribution from Bharti Airtel in India. Bharti was hit by financing costs for its recent acquisition of Zain Africa. As a result, Bharti’s contribution to associate fell to 38% from 42% in 1QFY10.

• Contribution from SingTel’s other significant associate, Telkomsel in Indonesia, also fell at 10% YoY. This was despite the Indonesian Rupiah appreciating 9% YoY against the Singapore dollar. Mainly, expenses outpaced with Telkomsel’s network upgrades and expansion. Telkomsel made up 40% of Associate in 1QFY11 (38% in 1QFY10).

• Managment is moderating for a margin decline at Telkomsel, and Bharti’s earnings will continue to be diluted by acquisition financing costs for Zain Africa BV and investment in 3G spectrum.

• On lower associate performance, we cut full-year forecasts by 3% in FY11F to 25.0 cents EPS, and by 2% in FY12F to 26.0 cents EPS. We also update fair value to 8% lower at S$2.82, but maintain our HOLD rating for another 6% price downside.

• Singapore operations enjoyed healthy revenue growth of 10% to S$1.52bil largely due to mobile and IT/engineering segments. Key driver for mobile was a S$5 surge in postpaid ARPU to $89 as data usage pushed non-voice revenue contribution to 37% (from 32% in 1QFY10 and 36% in 4QFY10).

• However the upfront investment in smartphone proliferation squeezed Singapore EBITDA margins to 39% from 42% in 1QFY10. The boost for IT/engineering revenue is largely from fibre rollout for NGNBN.

• Optus in Australia was the star – in addition to robust net profit growth of 22% to A$170mil, contribution to SingTel was further boosted by a 9% YoY appreciation in A$/S$ rate. Postpaid subscribers continued to grow at a healthy 16% YoY. Optus accounted for 25% of group EBIT.

• Management continues to guide for mid-single digit core revenue growth for FY11F, while EBITDA margin for Singapore will be squeezed to 35% from higher pay TV content costs as Barclays Premier League commences on mio TV platform.

SingTel – AmFraser

Rough patch for Associates, forecasts and fair value cut

• SingTel’s 1QFY11 net profit came in flat YoY at S$943mil. Earnings improved for Singapore and Australia operations, but group results were dragged down by lower contribution from associates.

• Associate contribution fell 16% YoY to $541mil, making up 41% of EBIT (versus 49% in 1QFY10). This was largely due to a hefty 23% fall in contribution from Bharti Airtel in India. Bharti was hit by financing costs for its recent acquisition of Zain Africa. As a result, Bharti’s contribution to associate fell to 38% from 42% in 1QFY10.

• Contribution from SingTel’s other significant associate, Telkomsel in Indonesia, also fell at 10% YoY. This was despite the Indonesian Rupiah appreciating 9% YoY against the Singapore dollar. Mainly, expenses outpaced with Telkomsel’s network upgrades and expansion. Telkomsel made up 40% of Associate in 1QFY11 (38% in 1QFY10).

• Managment is moderating for a margin decline at Telkomsel, and Bharti’s earnings will continue to be diluted by acquisition financing costs for Zain Africa BV and investment in 3G spectrum.

• On lower associate performance, we cut full-year forecasts by 3% in FY11F to 25.0 cents EPS, and by 2% in FY12F to 26.0 cents EPS. We also update fair value to 8% lower at S$2.82, but maintain our HOLD rating for another 6% price downside.

• Singapore operations enjoyed healthy revenue growth of 10% to S$1.52bil largely due to mobile and IT/engineering segments. Key driver for mobile was a S$5 surge in postpaid ARPU to $89 as data usage pushed non-voice revenue contribution to 37% (from 32% in 1QFY10 and 36% in 4QFY10).

• However the upfront investment in smartphone proliferation squeezed Singapore EBITDA margins to 39% from 42% in 1QFY10. The boost for IT/engineering revenue is largely from fibre rollout for NGNBN.

• Optus in Australia was the star – in addition to robust net profit growth of 22% to A$170mil, contribution to SingTel was further boosted by a 9% YoY appreciation in A$/S$ rate. Postpaid subscribers continued to grow at a healthy 16% YoY. Optus accounted for 25% of group EBIT.

• Management continues to guide for mid-single digit core revenue growth for FY11F, while EBITDA margin for Singapore will be squeezed to 35% from higher pay TV content costs as Barclays Premier League commences on mio TV platform.

Comments are Closed