We Remain Neutral

• Final dividend of 8 cents per share is 0.4 cent or 5% higher than we expected, which together with the 6.2 cents interim, translates to a 4.7% yield.

• This is not bad, but the lowest, albeit the most sustainable in the sector.

• Profit for Q4 ended Mar ’10 came to $1,015 mln, up 12.4% from a year ago. At the Underlying Profit basis, the increase was a more moderate 6.6% to $1,022 mln, bringing the total for the year ended March ’10 to $3,907 mln and $3,910 mln respectively.

• Payout ratio would be 57.8%, consistent with Sing Tel’s policy of paying out 40-60% of its profits.

• It’s essentially the same “story”: moderate growth in the mature Singapore and Australia (through Optus) markets, and contributions from the regional associates, although the 32% owned Bharti witnessed its first quarterly profit decline of 8.2% in the March ’10 quarter (reported 2 weeks ago), reflecting the cut-throat competition in the mobile market in India.

• And our stance remains Neutral.

Results are secondary, watch the rising risks in India

• In line. SingTel’s FY10 core net profit was exactly in line with both CIMB and consensus estimates. It declared final DPS of 8 cts to total 14.2cts or 58% payout, slightly ahead of our forecast but within its policy of 40-60%. The results are characterised by a higher mix of IT and Engineering revenue in Singapore, offset by seasonal weaknesses in their mobile divisions. Associate contribution declined mainly because of Telkomsel. Maintain our forecast, UNDERPERFORM recommendation with a SOP-based target price of S$3.30 for now pending its conference call later this morning. No surprises from SingTel’s FY11 guidance. We see downside to our target price, mainly stemming from Telkomsel and Bharti. Likely factors to depress share price are rising content costs in Singapore, regulatory risks in India and earnings dilution from Bharti’s acquisition of Zain Africa.

• Normal seasonal weakness. Revenue was flat qoq reflecting the seasonal weakness in both consumer and business customers. Singapore’s revenue rose 7% qoq mainly on lumpy IT and engineering revenues, while that of Optus fell 3% qoq.

• Weaker associates. Associate contribution fell 5% qoq mainly because of a 14% decline in Telkomsel’s contribution. The Indonesian cellco was affected by competition in data and SMS and lost market share to Indosat and XL. Bharti’s performance was surprisingly resilient despite the cutthroat competition. However, the soaring 3G bids in India which crossed the US$3.2bn mark of more than four times the reserve price, new proposals by the Indian government that slaps more costs on spectrum and earnings dilution from Bharti’s acquisition of Zain Africa.

• No surprises from FY11 guidance. SingTel expects Singapore’s revenue to grow in the single digit yoy, but expects EBITDA to grow in the low to single range due to higher content and customer acquisition costs for mioTV. Optus expects to grow its revenue and EBITDA in the mid single-digit levels. SingTel expects Bharti’s earnings to be diluted from the financing costs for ain and the investment in 3G spectrum. We think there is downside risk to Telkomsel’s guidance of high single digit levels for its revenue growth, given its poor 1Q10.

Optus is the new reason

At a Glance

• Underlying profit of S$1022m beat consensus by 5%. Optus surprised with higher revenue and margins, led by the mobile segment

• 8 Scents final dividend in line, no special dividend

• FY11F guidance – S’pore EBITDA to decline low-to-mid single digit, Optus EBITDA to grow mid-single digit.

• Maintain BUY. For growth at Optus, Telkomsel & lower losses at Warid despite challenges at Bharti; TP S$3.40 based on SOTP valuation.

Comment on Results

Optus results significantly better than expectations due to benign competition. Optus’ net profit of A$220m (+14% yoy, +33% qoq) was ahead of our expectations. While 4Q is typically strong in margins after the festive promotion in 3Q, we did not expect the margin rebound to be so strong due to higher iPhone acquisition costs. Optus’s EBITDA margins of 27.3% (23% in 3Q10, 27.8% in 4Q09) resulted in 15% qoq rise in EBITDA. This is all the more impressive as Optus added 147k postpaid subscribers in the quarter, most likely increasing its market share.

Optus guidance for FY11 in line. Management guided for (i) midsingle digit growth in revenue and EBITDA (ii) Capex of A$1.2bn (A$1.05bn in FY10) and free cash flow above A$1.0bn (A$1.01bn in FY10). We have modeled EBITDA growth at 3.8% in FY11F.

Singapore results slightly lower than expectations. Singapore EBITDA margins came at 35.3% compared to our 36% estimate, due to higher selling & admin expenses (+24% yoy, +7% qoq). This can be attributed to higher content costs for mio TV and smart phone retention costs.

Singapore guidance for FY11F in line. Management guided for (i) mid-single digit revenue growth, but low-to-mid single digit decline in Singapore EBITDA (ii) Capex of S$830m (S$652m in FY10) and free cash flow around S$1.1bn (S$1.29bn in FY10). We have modeled 1.8% EBITDA decline in our forecasts.

SingTel’s regional mobile base climbs to 293m in Q1

A STRONG performance in two big overseas markets helped lift Singapore Telecom’s regional mobile subscriber base to 293 million in the first quarter, up 17 per cent from a year ago.

For the three months ended March 31, Indian associate Bharti registered a subscriber tally of 127.6 million – 33.7 million more than a year back. On a sequential basis, Bharti gained some 8.8 million mobile customers, SingTel said yesterday.

Telkomsel was the other star performer. The Indonesian operator’s mobile subscriber base grew 14 per cent or 9.8 million from last year to 82 million.

Thailand’s AIS and PBTL in Bangladesh saw smaller year-on-year increments of 1.9 million and 35,000 customers respectively.

SingTel’s Australian subsidiary Optus added some 710,000 mobile users from 2009 to lift its base to 8.5 million. Sequentially, Optus registered its best quarter in five years, adding 254,000 mobile subscribers, thanks to aggressive smart phone and wireless broadband promotions.

On the home front, SingTel’s mobile customer tally in Singapore grew 140,000 year on year to 3.1 million. The local subscriber base was lower compared with the previous quarter due to the deactivation of some prepaid segment accounts, but SingTel said that this had no impact on revenue.

SingTel’s other two overseas associates – Globe in the Philippines and Warid in Pakistan – lost subscribers in Q1. Their mobile customer bases fell 1.85 million and 1.1 million respectively year-on-year to 23.9 million and 16.3 million.