SingTel – CIMB

Bharti’s 2QFY13 letdown

2QFY13 core net profit for Bharti, SingTel’s associate, came in 37% below consensus estimates that form the basis of our forecast. This was due to an unexpected surge in depreciation and higher interest expense in Africa. Its operational performance was well within expectations.

We maintain our SOP-based target price and Underperform call on SingTel. Likely de-rating catalysts include additional negative regulatory developments in India and weaker regional currencies. SingTel will release its 2QFY13 results on 14 Nov. We prefer StarHub for its attractive dividends.

What Happened

Bharti Airtel, SingTel’s 30.8% associate, released its 2QFY13 results and held its conference call earlier today. 2QFY13 core net profit for Bharti came in 37% short of consensus estimates that form the basis of our forecast. This was mainly due to surge in depreciation costs and finance costs in Africa.

Despite a seasonally weak quarter, revenues rose 4.8% qoq, lifted by a 77% yoy jump in mobile data and a 24% yoy rise from Africa revenues. Africa’s subscriber base increased by 21% yoy and 5% qoq. India’s ARPUs slid 4.3% qoq due to competition. Opex rose sharply by 19% yoy as the group continued expanding its networks in India and Africa. EBITDA margin grew 1.1% pts qoq, with an improvement in Africa offset by lower margins in India.

Management is optimistic that voice pricing will improve sooner than later as it sees that most of the sector levies have been priced in and should rebound once the 2G auction is over. India’s 2G auction is slated to take place on 12 Nov.

What We Think

We think Bharti’s results were poor and would not contribute to any price catalyst for SingTel. We are surprised by Africa’s strong operational improvement. However, India continues to remain a key risk area, given the highly uncertain regulatory environment and weakening rupee.

What You Should Do

We advocate investors to switch into StarHub in light ofits potential for higher dividends. We believe that investors should demand a higher yield for SingTel, given its higher risk profile and more volatile earnings.

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