SingTel – MayBank Kim Eng

The Heavy Lifting Begins

“Hype” phase over, time to deliver. SingTel is a SELL with a target price of SGD3.38 as the easy “hype” phase is over now that the stock has gained 30% in a year and SingTel has to deliver. Even as it prepares to pour in more billions into loss-making, very long-term investments with no hope for positive short-term returns, capex is expected to rise 25% and free cashflow is expected to drop by a third, it is on the eve of having to spend even more money that is beyond its current guidance – if it wins one of two Myanmar telecom licences (deadline 27 June 2013). M1 is our top pick among Singapore telcos.

Within expectations. FY13 underlying net profit of SGD3,611m was within expectations mainly because of strong contributions from Telkomsel and Globe that offset continued poor results from Bharti Airtel. Singapore operations (rev +3%, ebitda +0.9%) benefited from higher market share in mobile, fixed broadband and Pay TV, but Optus results were below expectations (rev -6.7%, ebitda -1.2%) as the Australian market remained buffeted by competition. A final dividend of 10 cents was announced, up from 9 cents, for a total payout of 74%.

Crunch time in FY14. Results-wise, FY14 is likely to be muted, with stable group revenue (Singapore to do better but Australia muted) and low single digit rise in EBITDA (on cost controls in Australia and Singapore). However, SingTel is in spending mode. It plans to spend more on Digital investments (SGD2b allocated over 3 years) and capex (SGD2.5b in FY13, up from SGD2b in FY13 – mainly on 3G and 4G networks and spectrum). As such, free cashflow will drop 28% to SGD2b in FY14, though still enough to fund a 75% dividend payout.

Myanmar investment will be on top of guidance. SingTel is tipped to be a hot favourite for the two new foreign operator licences in Myanmar. 12 applicants have been pre-qualified, with submission on 3 June and the winners known on 27 June. The capex and investment guidance of SGD2.5b and SGD2b respectively does not include investments needed for Myanmar, which could also run in the billions. Digicel, which is bidding with George Soros’ fund, has suggested that the initial project investment could be USD1.5b to USD2b.

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