SingTel – CIMB

Bharti’s 2Q12 below

Bharti’s 2Q12numbersmiss ourestimateswhich arebased on consensus due to upfront and non-recurring finance charges and lower-than-expectedmargins. Despite this, we remain positive on SingTel, one of our top picks in the region.

We expect SingTel’s 2QFY12 core net profit to be flat qoq and yoy. Also, SingTel islooking to buy 2% of ADVANC from Shin Corp at THB130/share, a value which we deemfair. Maintain Outperformon improving fundamentals among its units and attractive dividends.

What Happened

Bharti’s 2Q11 highlights were:1) total minutes declined for the first time, under the influence ofseasonalityand the economy;and 2) mild revenue growth(+1.7% qoq)as there wasa fall in minutes and ARPUsin India while business in Africa grew strongly thanks to elasticity gains;3) margins were firm with strengthin Africa, and 4) one-off finance cost and regulatory payments. The conference callhighlighted that irrational pricing by the smaller players has beenignoredby the incumbents and also, Bharti’s confidence in Africa as it raisesits capex guidancethere.

SingTel’s 2QFY12 core net profit could come inflat qoqand trending a little below expectations. SingTel Singapore’s core net profit should decline qoq on lower seasonal margins. Associate contributions should rise despite weak contributions from Bharti, thanks to ADVANCand Telkomsel.

Lastly, SingTel is looking to buy 2.05% of ADVANC from Shin Corp at up to THB130/share.

What We Think

While Bharti’s 2Q is disappointing and its business in India/South Asia shows the strains of defending its market leadership, we note the effectsof seasonality. We believe that recentpricing hikes would also benefit Bharti once the effects flow through. In the longer term, minutes should flow back to the incumbent especially if consolidation occurs.

We are neutral onSingTel’s proposed acquisition of ADVANC, given that the valuation is fair.

What You Should Do

Maintain OUTPERFORM.Bharti’s results, while a disappointment, do not alter our positive view on SingTel which we like for the improving fundamentals among its unitsand yields. It is one of our top picks in the region.

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