Expect FY13 to be within mgmt guidance

Company Overview

SingTel (ST) is a leading communications service provider with diversified geographical exposures. The core part of SingTel’s business resides in Singapore & Australia, while meaningful stakes in its regional Associates provides the Group with exposure across Asia-Pacific.

• Underlying net income lower y-y at S$874 million
  
• Positive on Singapore performance, while AIS and Telkomsel’s contributions remain strong
  
• Bharti pre-tax contribution lower q-q, Optus EBITDA stable, but Capex requirements still high
  
• We rate SingTel as Neutral with new TP of S$3.31
  

What is the news?

SingTel reported 3Q13 underlying profits of S$874 million, decreasing 2.3% y-y. Management maintained their guidance on the EBITDA and Capex for the various segments. In Singapore, revenue increased marginally 1.3%, due to higher Mobile, IPTV, and Equipment revenue, mitigated by lower International and national telephone revenue. In Australia, revenue decreased 8.1%, largely due to lower mobile revenue attributable to the decline in mobile termination rate and introduction of service credits. AIS and Telkomsel post healthy results, while Bharti’s pre-tax contributions continue to decline.

How do we view

3Q13’s earnings were below our expectations on weaker revenue from Optus, and lower contributions from associates. Positives from this round of results include an increase in data monetizing, indications of lower IPTV content cost in Singapore, effective cost management in Australia, and potentially better performances for Globe and Bharti moving forward. Optus would however require continued higher capex, and may incur high spectrum costs.

Investment Actions?

We factor in 3Q13’s earnings, and improved q-q valuation of the associates. We derive a new Sum-of-the-parts (SOTP) target price of S$3.31, and maintain our “Neutral” call.

STABLE 3QFY13 RESULTS

• 9MFY13 results in line
  
• No change to guidance
  
• Higher S$3.68 FV
  

Stable 3QFY13 results

SingTel saw its 3QFY13 group revenue dipping 4.8% YoY to S$4597m, and while EBITDA rose 0.5% to S$1262m, net profit fell 8.3% to S$827m (mainly due to exceptional loss of S$67m). However, excluding exceptional items, underlying net profit was down 2.3% at S$874m. 9MFY13 revenue fell 2.4% to S$13702m, meeting 73% of our FY13 forecast, while net profit slipped 2.2% to S$2640m; core earnings was down 1.6% at S$2610m, or 69% of full-year estimate.

FY13 guidance unchanged

Going forward, SingTel has kept its previously revised guidance unchanged for FY13 i.e. consolidated revenue to see single-digit decline, although EBITDA will remain stable. Free cashflow (FCF) is expected to remain around S$2.6b (its 9MFY13 FCF hit S$2.49b); capex for Singapore still around S$950m and Australia about A$1.1b (excluding spectrum payments). SingTel adds that consolidated revenue and EBITDA would be impacted by material exchange rate movements in A$ and regional currencies.

Myanmar is a potential market

While SingTel will continue to focus on its transformation plan to grow in the new digital era, it can also grow its regional business. We understand that the telco is understandably keen on getting into a new and untapped market in Myanmar. However, management notes that it is still early days as the government there has just called for an expression of interest. It adds that many global telco players are also keen on securing one of the two licenses potentially on offer.

Maintain BUY with new S$3.68 FV

As results were in line with our expectations, we opt to leave our forecasts unchanged for now. However, in line of the recent recovery in the price of its listed associates, our SOTP-based fair value improves from S$3.53 to S$3.68. We also maintain our BUY rating on the stock.

• Results for Q3 ended Dec ’12 tell the same story as in recent quarters – underlying profit (excluding exceptionals) fell 2.3% to $874 mln.
  
• Singapore was resilient while Optus Australia was marginally better with underlying profit 2.7% higher even as revenue fell 6%.
  
• Improved contributions from Telkomsel (Indonesia) and AIS (Thailand) were largely offset by India’s Airtel.
  
• Free cash flow rose 5% to $666 mln.
  
• Assuming unchanged final dividend of 9 cents as has been the case at the interim stage of 6.8 cents, yield is 4.4%.
  
• We are downgrading stock to HOLD following the 9.4% price gain in the year to date (on talk of entry into the Myanmar market), outperforming STI ‘s 4.2% rise.