SingTel – CIMB

A mixed bag

In line. Annualised 9MFY11 core net profit matches CIMB and market expectations with respective variances of -1% and -3%. The results were characterised by: 1) strong contributions by SingTel Singapore as EBITDA margins expanded; 2) higher Optus contributions supported by a 5% qoq rise in the A$; and 3) weak contributions from associates. SingTel has reiterated its guidance. We maintain our earnings forecasts, S$3.29 SOP target price and UNDERPEFORM rating. Likely de-rating catalysts are: 1) regulatory issues in India surrounding one-off fees and renewal fees for spectrum; 2) a more aggressive Telstra in Australia, and 3) margin pressure in Singapore on content costs and mioTV’s expansion. SingTel will be hosting a conference call today at 11am Singapore time.

Singapore margins expanded. SingTel Singapore had a strong quarter where its EBITDA margins expanded 2.4% pts qoq on the back of lower subscriber acquisition costs, although the last calendar quarter was a festive one. We believe this was due to a low base in the previous quarter when the iPhone 4 was launched. Revenue was also seasonally powered by IT sales as companies completed their projects by year-end. As a result, 3Qcore net profit jumped 18% qoq.

A$ bolstered Optus’s contributions. Optus’s 3Q revenue rose 7.7% qoq, driven by a 5% qoq appreciation of the A$ against the S$. EBITDA margins were broadly unchanged, while core net profit was flat qoq.

Associates were weak. Associate 3Q PBT fell 8.5% qoq, dragged down by Telkomsel (-7% qoq), Bharti (-12% qoq) and Globe (-18% qoq). Telkomsel’s contribution was diluted by a 4% qoq depreciation of the rupiah vs. the S$. Its revenue was also affected by “heightened market competition as many aggressive price promotions were launched” while EBITDA was flat qoq in rupiah terms. Bharti’s contribution was affected by fair value losses from mark-to-market valuation of foreign currency liabilities. Globe was affected by stiff competition, on unlimited voice and SMS offerings.

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