SingTel – DBSV

Associates to grow after two year hiatus

FY12 core earnings of S$3676m (-3.3% y-o-y) in line with earnings drop due to 41% decline in Bharti’s contribution.

Final DPS of 9 Scts (including interim DPS of 6.8 Scts) translates to 68% payout ratio and 5% yield; Singtel likely to see high single-digit growth in FY13F.

Buy for attractive valuation (12.5x PE versus 13.2x hist. avg.), decent growth (FY12-14F EPS CAGR of 5%) and yield (5.6% based on 70% payout ratio).

Highlights

Stable Singapore EBITDA guidance due to start-up losses at Digital Life segment. FY12 EBITDA was stable at S$2.24bn (-0.5% y-o-y) despite 2.3% growth in revenues due to higher mobile connections and costs of acquiring triple play customers. Management guided for low-single digit revenue growth but stable EBITDA on the back of start-up losses at Digital Life. Capex to rise 5% to S$950m due to network enhancements and expansion of Kim Chuan Data Centre.

Stable Optus EBITDA guidance, keeping in mind lower mobile termination rates. FY12 EBITDA was up 1% to A$2357m on the back of a 0.9% growth in revenues. Guidance of low single-digit revenue growth but stable EBITDA due to lower mobile termination rate of 6 cents (prev 9 cents), from January 2012. Staff reduction to help contain costs. Capex to decline 8% to A$1.1bn due to more site-sharing with VHA.

Associates likely to grow 20% in FY13F after two years of decline. FY12 post-tax earnings contribution dropped 12% to S$1414m as Bharti’s 41% decline offset 5% & 31% growth at Telkomsel & AIS respectively. We expect associates to register 20% growth in FY13F on the back of Bharti’s 50% growth (consensus projects 75% growth) and growth at other associates. Bharti’s weakness was due to 3G amortisation costs and paper loss on foreign debt due to weak Indian rupee. Going forward Bharti should register strong growth on a low earnings base as amortization costs are already factored and EBITDA is improving in both India and Africa. Strong SGD is a key risk though.

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