SingTel – Lim and Tan

• Net profit fell 6.7% in Q2 ended Sept’10 to $892 mln, as the decline in associates contributions (largely financing costs relating to the mega African acquisition by 32% owned Bharti of India) could not be offset by better performance in Singapore and Australia (benefitting from a strong A$).

There will likely be some disappointment, but not likely, in our opinion, to be severe.

• Fact is, investors have not, for some time now, reacted too enthusiastically to the past rosy contributions from associates, as more came to realize the greater significance of cash flow from these associates than share of their accounting profits.

• Likely to pacify shareholders, management has raised the dividend policy to 55-70% of underlying profit from 45-60% previously.

• Interim dividend has therefore been raised by almost 10% to 6.8 cents per share, representing 59% of $1.834 bln underlying profit for the first half). Assuming unchanged final of 8 cents, that’s a 4.6% yield, thus qualifying Sing Tel as a quasi-bond.

• Boring is still likely the most appropriate description for Sing Tel. We are therefore maintaining HOLD / LONG TERM BUY call.

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