SingTel – CIMB

Exits Pakistan

SingTel is selling its 30% stake in Warid Telecom (WT), which was acquired in mid-07, for US$150m (S$185m) or an 86% loss on its total investment of S$1.31bn. It will book in a loss of S$238m in FY13. We raise our SOP-based target price for SingTel by 1 Sct to S$3.23.

This is to reflect the sale proceeds as we had used WT’s carrying value of S$38m in our SOP. No change to our forecasts as we have stopped equity-accounting WT since SingTel reclassified it as “asset held for sale”. SingTel is an Underperform given policy risks and stiff competition and we prefer StarHub or Axiata.

What Happened SingTel announced that it is selling its 30% stake in WT to its JV partner Warid Telecom Pakistan (WTP) for US$150m and the right to receive a 7.5% share of the net proceeds from any future sale by WTP. WTP owns the remaining 70% of WT. SingTel had ceased to equity-account for WT after reclassifying it as an “asset held for sale” on 1 Jul 12.

What We Think

The sale proceeds, excluding the value of any future sale by WTP, represent a loss of 86% on SingTel’s total investment of S$1.31bn in WT. Besides fierce competition and high sales tax, Pakistan’s political and economic climate has deteriorated since SingTel acquired WT. The Pakistani rupee (PKR) also halved in value relative to the S$ over the course of SingTel’s investment from S$39.8/PKR in mid-07 to S$79.1/PKR currently.

With SingTel exiting Pakistan, all eyes will be on its 45%-owned CDMA-based PBTL in Bangladesh, which it has also reclassified as “asset held for sale”. To date, SingTel has invested S$238m in PBTL. The loss in Pakistan should not overshadow SingTel’s excellent track record of investing in regional mobile players that has made it become Southeast Asia’s largest telco.

What You Should Do

As SingTel faces policy risks in India, stiff competition in Australia and margin pressure in Singapore, switch to StarHub (Outperform), our top Singapore telco pick, or Axiata (Outperform) for exposure to emerging market telcos. We expect StarHub to raise its quarterly dividend from 5 Scts to 6 Scts while Axiata could pay more than the 65% guided. Both telcos have solid FCFE generation and low gearing

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