SingTel – CIMB

Strong finish to FY13, but weak FCF in FY14

FY13 core was 4% above our forecast and 3% above consensus on surprises at Telkomsel, AIS and Globe. Optus slightly disappointed but Singapore was in line. SingTel guides for a 30% drop in FCF in FY14 (ex-associate dividends) on flat revenue and a 25% surge in capex.

It will be allocating S$2bn to investments in the digital business over the next three years. It declared a final DPS of 10cts for a total of 16.8 cts (74% payout) vs. 15.8 cts in FY12 (69%). We tweak our FY14-15 EPS and keep our SOP target price for now. SingTel remains an Underperform with de-rating catalysts expected from disappointing FC. M1 remains our top Singapore telco pick.

Australia and Singapore

Operationally, Optus’s 4Q was slightly below expectations with still-weak net adds and cost savings behind its EBITDA growth. Revenue fell 5% yoy, while EBITDA grew 3%. SingTel Singapore met our expectations, backed by market-share gains in mobile, fixed broadband and pay TV.

Associates saved the year

Telkomsel’s, AIS’s and Globe’s earnings surprised positively thanks to growth in subscribers and mobile data. AIS’s contributions were further bolstered by a 2% appreciation of the THB vs. S$ and lower corporate taxes starting Jan 13. Bharti was the main drag among its associates on higher depreciation/amortisation in Africa and an 11% depreciation of the Rs/S$.

Muted outlook

SingTel’s guidance paints to another muted year for Australia and Singapore (Figure 1). It expects FY14: 1) revenue to be flat after declining 3% yoy, with single-digit growth in Singapore offset by lower revenue for Optus from lower mobile interconnection rates; and 2) EBITDA to rise by low single digits on the back of efficiency gains. More importantly, FY14 free cash flow is expected to fall 30% yoy on the back of a 25% surge in capex as Australia and Singapore invest in LTE and 3G.

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