SingTel – CIMB

Short term stumble but fundamentals intact

SingTel stumbled in 2QFY12 but the fundamentals of its units are improving, except for Australia’s Optus which will continue to face stiff competition over the next six months. Bharti’s performance should improve, based on consensus.

We remain optimistic on SingTel Singapore, Telkomsel and AIS. We trim our forecast but raise our SOP target price after rolling it forward. SingTel remains an OUTPERFORM with likely catalysts being improving fundamentals of its key units and attractive dividend yields.

What Happened

SingTel held its quarterly conference call after releasing its 2QFY12 results. The main takeaways are: – Optus expects competition to remain intense in Australia over the next six months.

– Capex in Singapore should ease going forward vs. FY12 despite more spending on LTE and the submarine cable between Singapore and Japan because its shift to a multimedia business model is less capital-intensive.

– SingTel is proposing to acquire 2% of AIS because it believes it can continue to add value to the company.

– Cannibalisation of SMS by data is small among its associates vs. in Singapore and Australia because of the low smartphone penetration in the developing countries. SingTel also allayed concerns over cannibalisation as Singapore and Australia bundles voice/SMS/data vs. in Europe where it is priced separately.

What we think

No major surprises from the call. Our positive view of SingTel remains unchanged. The most notable point in our view is the continued intense competition in Australia, which is our key concern for Singapore. However, we think the rest of its units are performing well or should improve going forward, especially Bharti.

What You Should Do

We believe investors should remain invested in SingTel. The stock is defensive with most of its units performing well while dividend yields are an attractive 5%, which should help weather the market uncertainties.

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