SingTel – OCBC

SLOW FY13 START; LOWER S$3.61 FV

  • Core earnings 22% of FY13
  • Hit by weaker regional currencies
  • BUY as total return >10%

Soft FY13 start

SingTel reported its 1QFY13 results this morning, with revenue falling 1.6% YoY to S$4533.0m, meeting around 24% of our full-year forecast; impacted by the 3% depreciation in the AUD against the SGD. Reported net profit came in around S$945.3m, up 3.2% YoY, which included an exceptional gain of S$102.2m. Core net profit (excluding exceptional items) slipped 2.6% YoY to around S$850.0m, or 22% of our FY13 estimate. On a sequential basis, revenue fell 5.2% and core earnings was down 16.9%.

Regional currencies take toll on associate earnings

One of the key reasons for the fall was due to lower Associates' net contribution, which fell 14.7% YoY to S$354.0m, mainly due to the weakening of the regional currencies (especially INR and IDR against the SGD). But on a constant regional currency terms, pre-tax Associates' contribution grew 5.6%, where strong operating performance from Telkomsel and AIS partially offset Bharti Airtel's weaker results.

Reaffirms FY13 guidance

SingTel expects consolidated revenue in FY13 to grow at a low single digit level and EBITDA to remain stable; although this implies potential EBITDA margin pressure, which could arise from initial startup costs associated with its Group Digital Life segment. Meanwhile, free cash flow (excluding associate dividends) is estimated to be around S$2.6b, after allocating S$950m of capex in Singapore and A$1.1b in Australia. SingTel also expects ordinary dividends from regional mobile associates to grow and its own dividend payout ratio to be maintained at 55-70%.

Lower S$3.61 fair value

While 1Q results were slightly below forecast, we opt to leave our FY13 estimates unchanged for now. However, our SOTP-based fair value drops from S$3.68 to S$3.61 to reflect the recent drop in Bharti Airtel's share price. But as the total return from here is still >10%, we maintain our BUY rating.

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