SingTel – CIMB

Lacking catalysts

We are little less optimistic on SingTel after its conference call today as the negatives pileup: rivalry in Australia’s mobile sector remains stiff and competition could intensify in the Philippines. We also see Australia’s fixed broadband competition heat up due to the NGNBN.

SingTel intends to retain its rights to carry the BPL but expects to be more rational with its bid. We downgrade SingTel to Neutral from Outperform, maintain our earnings estimates but tweak our SOP-based target price given its rising risks and CIMB’s rising optimism on the stock market.

What Happened

SingTel held a conference call after its 3QFY12 results. We are a little more negative on the stock as we think fixed broadband competition in Australia may intensify ahead of the introduction of the next generation broadband (NGNBN), similar to what happened in Singapore. Competition in the Australian mobile space remains intense with no sign of a let-up.

In Singapore, it expects to be more rational in bidding for the rights to the 2013-15 BPL seasons in 2H12. We believe SingTel intends to win the rights to this content, although it will be non-exclusive, given that is the anchor content for its pay TV.

We expect SingTel to continue to aggressively acquire both mobile and fixed broadband customers given its view to upsell them with content and applications down the road. It has a commanding 63% market share in fibre broadband.

What We Think

We think risks are rising for SingTel. Competition in Australia’s fixed broadband could intensify with the migration to NBN, similar to what happened in Singapore. StarHub’s broadband revenue and ARPU declined ahead of the launch of NGNBN as it jostled with SingTel for market share. In the Philippines, we think competition will be intense despite industry consolidation as Globe and PLDT slug it out for market share. Lastly, the Indian rupee remains weak.

What You Should Do

We advocate switching from SingTel to StarHub which we think will undertake a capital management in 2H12. We think SingTel’s earnings will likely be flattish in the coming quarters with growth in Singapore offset by competitive pressures in Australia, the Philippines and currency weakness in India.

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