SingTel – DMG

A Tick Lower as Margin Weakens

THE BUZZ

Singtel reported consolidated revenue of SGD4.8bn for the December quarter (3QFY12), up 4.8% q-o-q while core earnings improved 1.1% q-o-q to SGD895m. For 9MFY12, core earnings dipped 5.3% y-o-y to SGD2.65bn on the back of a 4.6% improvement in revenue to SGD14.0bn.

OUR TAKE

Falling short. At 67% and 70% of our and street estimates respectively, Singtel’s 9MFY12 earnings were below expectations, largely weighed down by the weaker than expected EBITDA margin at Optus. The key takeaways were the better sequential showing at its Singapore operation and Optus, helped by seasonality. The appreciation of the AUD and stronger EBITDA helped drive overall group EBITDA a tick higher q-o-q although margins were crimped by higher handset cost. The share of associate contribution fell 5% q-o-q and 10% y-o-y in 9MFY12, mainly dragged down by 3G related costs at Bharti.

Telkomsel’s performance normalizes; robust showing at AIS on data uptake. Telkomsel’s share declined 3% q-o-q from the +11% q-o-q exhibited in 2QFY12 as the IDR depreciated 6% q-o-q and where it had capitalized on the tariff promotions during the September quarter. The stronger revenue growth at AIS of 8% came on the back of continued brisk data growth, up 34% y-o-y.

Stronger roaming traffic and handset sales fuel Singapore revenue. Sing business revenue grew 5% q-o-q and 2% in 9MFY12 led by higher roaming revenue and the launch of the iPhone 4S. The IT and engineering business contracted 2% q-o-q given the high base of 14% q-o-q growth in the previous quarter.

55k Sing fiber customers, largest share of sub adds in 4Q2011 but slower prepaid. While the postpaid addition of 44k was above the 40k recorded in the Sept quarter, helped by the new iPhone 4S and the attractive array of Android models offered, prepaid subs were surprisingly lower q-o-q during the year-end high season. SingTel continued to garner over 50% share of new fiber customers, adding 18k users in the Dec quarter from both the commercial and residential segments.

Forecast under review. There is no change to management’s previous guidance for Sing/Optus’ revenue to grow at low single digits, EBITDA for Singapore expected to be stable (which could imply further weakness in EBITDA margin over the next quarter) while Optus’ EBITDA is expected to grow at a low single digit. Our forecast and fair value are under review pending the results call with management today. We maintain our NEUTRAL rating on the stock.

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