Expect further outperformance

3QFY08 results were within expectations. Reported 3QFY08 earnings of S$952m (- 4.2% yoy) were in line (Outlook remains positive. The strong operating performance continues to support our thesis that SingTel offers reliable earnings growth through a rejuvenated Singapore operation and associates led by Bharti and Telkomsel. However, we note that rising competition in Indonesia could make Telkomsel’s earnings more vulnerable to disappointments. That said, we still expect Telkomsel to remain the dominant operator in Indonesia.

Trimming earnings estimates. We trim our earnings estimates by 0.2-2% for FY08-10 primarily due to updated currency assumptions and an earnings downgrade for Telkomsel, reflecting concerns on rising competition. This is partially offset by an earnings upgrade for Singapore operations.

Maintain Outperform with reduced target price of S$4.45 (S$4.55 previously). Our sum-of-the-parts valuation has been reduced by our updated forex assumptions and Telkomsel earnings downgrade. However the impact is partially offset by our earnings upgrade for Singapore operations and Globe. We expect SingTel to outperform the STI in an environment of heightened risk aversion. SingTel offers defensive earnings growth through a portfolio of “best-in-class” telco operators in the region. We also expect SingTel to surprise consensus with a special dividend in 4QFY08. Potential newsflow on M&As of Vietnam telco assets towards 2H08 should also be supportive of its shares.

SingTel gets record 197,000 new mobile subscribers in Q3

Group combined mobile subscriber base in the region hits 171.5m

GIANT telco Singapore Telecommunications (SingTel) continues to hoover up mobile phone subscriptions as consumers indulge in their love affair with the handset.

For the quarter ended Dec 31, 2007, SingTel has scooped a record 197,000 new subscribers to bring its total to 2.33 million, meaning one in two people in Singapore is its customer.

The record quarterly increase of 197,000 prepaid and postpaid mobile subscribers beat the preceding quarter’s high of 185,000 net additions, said SingTel in a statement yesterday.

Singapore’s population stands at 4.68 million, comprising one million foreign workers and their families and 3.68 million Singaporeans and permanent residents. But the popularity of the mobile phone here has led to more handsets than people. According to the latest data from the Infocomm Development Authority of Singapore, total mobile subscriptions as at end-November 2007 stood at 5.432 million or a penetration rate of 116.1 per cent.

SingTel’s market share as at end-November was 41.2 per cent, up from 40.3 per cent as at end-September, said a company spokeswoman. The company reports third-quarter and nine-month results ended Dec 31, 2007 today.

Smaller rivals StarHub and MobileOne (M1) have been struggling to keep their market share amid tough competition.

M1, which posted full-year 2007 results last month, said its customer base rose 14.8 per cent to 1.54 million but market share fell to 27.4 per cent at the end of November from 28.5 per cent a year ago.

StarHub will post fourth-quarter 2007 results on Feb 13, 2007. Elsewhere in the region, SingTel’s associates too have been hitting records in garnering more mobile phone subscribers. Group combined mobile subscriber base in the region has reached 171.54 million as at Dec 31, 2007, up 53 per cent from Dec 31, 2006’s 112.28 million.

The latest figure was boosted by the addition of Warid Telecom’s 13.21 million subscribers in Pakistan in the quarter. SingTel bought 30 per cent of Warid in September 2007. SingTel has associates in Australia, Bangladesh, India, Indonesia, Pakistan, the Philippines and Thailand.

Recording the fastest growth pace was Indonesian associate Telkomsel. Its 3.43 million net addition was more than double the previous quarter’s 1.65 million, bringing the total customer base to 47.89 million as at end-2007. SingTel has a 35 per cent stake in Telkomsel which is currently facing charges of price fixing and may be forced to reduce its tariffs. SingTel and parent Temasek Holdings are also fighting anti-competitive charges in the Indonesian courts.

Doing well too was Bharti which propelled past the 50 million mark. Bharti, India’s largest regional mobile, broke its previous net addition records by attracting 6.29 million mobile subscribers in the quarter. As at Dec 31, 2007, Bharti – in which SingTel owns 30.45 per cent – has enlarged its subscriber base to 55.16 million mobile subscribers.

AIS, Globe Telecom, PBTL and Warid Telecom also posted healthy subscriber growth of between 4.4 per cent and 11.3 per cent during the quarter.

Optus, SingTel’s Australian unit, saw its subscriber base pass the seven million mark at end-2007, up from 6.68 million a year ago.

Impressive Quarter Once Again

Overall results exceed expectations. Underlying net profit of S$931m (up 22% yoy, 2% qoq) exceeded our forecast of S$912m and consensus forecast of S$907m. Besides there was exceptional income of S$21m in 3Q08. We have excluded S$84m in compensation from IDA from last year results for fair comparison.

Singapore business inline with impressive market share gains. Singapore EBITDA contribution of S$479m was in line with our expectations of S$480m. EBITDA margin of 38.7, though slightly below our expectations of 39% margin, was compensated by higher revenue growth of 11%. Continuous market share gains in mobile business were quite impressive as SingTel garnered almost 60% of the total new subscribers added in the quarter.

Australia business inline with better performance across fixed line. Optus EBITDA contribution at A$506m was (up 1% yoy, 6% qoq) in line with our expectations of S$505m. However, EBITDA was up 9% in S$ terms as A$ is up 8% yoy. Due to aggressive subscriber acquisition plans, mobile business margins were hit, which were compensated by higher margins in fixed line business from higher on-net volumes.

Regional associates above expectations mainly due to Globe Telecom. Regional associates contributed S$656m (up 30% yoy, 4% qoq) in pre-tax earnings, which is slightly higher than our expectation of S$645m. Bharti’s, Telkomsel and Globe’s contribution grew 39%, 23% and 55% yoy respectively. Globe Telecom surprised on the upside due to higher subscriber growth and data services in the festival season along with forex gains.

Healthy Outlook. Market share gains in Singapore should reflect in better margins next year. Bharti should continue to register impressive growth while Telkomsel could witness some slowdown due to lower tariffs. Maintain BUY at SOTP based target price of S$4.50