Opportunity to redeploy capital?

• We believe there are avenues to free up capital in Australia and Singapore, which can be redeployed in more attractive opportunities such as Bharti.

• Reversal of pricing downtrend in Indonesia and rise in regional currencies lead to 4% earnings revision.

• Consensus numbers are 4% below our revised FY10FFY11F earnings. Maintain BUY with revised SOTP based TP of S$3.22

Opportunities to free up capital in Singapore and Australia. We believe SingTel has multiple alternatives in Australia – to sell Optus’ fixed network and/or list Optus on the stock exchange, which is more stable now as a result of healthier competitive environment post Hutch-Vodafone merger. We believe that SingTel also has an option of spinning off its IT subsidiary, NCS and re-list on the stock exchange in the long term. We assign higher probability to the sale of Optus fixed line network in the near term. We estimate that the potential sale of Optus fixed Network, listing of Optus and NCS can free up over S$1.5 bn, S$6-8 bn and over S$1 bn of capital respectively. If freed up capital can be redeployed in better opportunities, the stock may warrant re-rating.

Strategic rationale for higher investment in Bharti. SingTel may not want to see its stake diluted in Bharti post Bharti-MTN deal. This would require S$5-6b investment from SingTel and provide investors an exposure to the emerging markets of Africa, through tried and tested partner Bharti. We believe that Bharti can further enhance MTN’s profitability, by transferring its “minutes factory” business model.

Recovering Telkomsel leads to 2% revision in FY10F earnings. Recently, Excelcom has taken-off its super off-peak free on-net call offerings while Telkomsel has extended the number of chargeable minutes during peak hour call. As such, we believe that pricing downtrend is set to reverse in Indonesia.

Surging regional currencies lead to another 2% revision. Since our last SingTel update on 15 May, Aussie dollar, Indian rupee and Indonesian rupiah have strengthened 2-4% versus Singapore dollar.

New satellite opens new doors to SingTel

ST-2 will launch in 2011 and improve coverage in emerging markets

SINGAPORE Telecommunications is set to increase its footprint in the important emerging markets of North Africa, Middle East and Central Asia with the launch of a new and powerful satellite – the ST-2 – in 2011.

The ST-2, which goes up in space via an Arianespace launcher, will initially complement and later replace SingTel’s current satellite the ST-1 which has been in orbit since 1998. The contract for the launch was signed with Arianespace on Sunday.

SingTel’s executive VP for business, Bill Chang, told BT that the cost of building the ST-2 was approximately US$200 million.

The satellite will strengthen SingTel’s coverage in the emerging markets of North Africa, the Middle East and Central Asia.

There is a strong demand for Direct-to-Home (DTH) services and broadcast solutions, as well as IP-based (Internet Protocol) solutions and VoIP (voice over Internet Protocol) telephony in this region, Mr Chang noted.

‘In fact, we have just signed a long-term multi-million dollar contract with Videocon, a leading Indian DTH service provider, to beam hundreds of TV channels to homes across India,’ Mr Chang noted.

Giving details of the launch in Paris, Arianespace’s chairman and CEO, Jean-Yves Le Gall, told BT that the SingTel joint venture with Taiwan’s Chunghwa Telecom, ST-2 Satellite Ventures, has inked the launch deal with Arianespace.

The ST-2 will be launched by a giant Ariane 5 ECA rocket from the Guiana Space Centre, Europe’s Spaceport in French Guiana.

The huge 5.1 tonne satellite will be built by Mitsubishi Electric Corporation of Japan and will carry C and Ku band transponders. The ST-2 will have a 15 year lifetime in orbit.

SingTel’s Mr Chang noted that SingTel will own more than 60 per cent of ST-2’s capacity. He added that the average lifespan of a satellite is 11 to 13 years.

‘In the industry, there are some satellites that are even used for up to 18 years. After ST-2 has been launched, we will continue to use ST-1 for another three years for services such as maritime communications.’

Arianespace’s Mr Le Gall noted that the company is ‘proud to serve SingTel and Chunghwa with whom we have maintained warm relations since the launch of ST-1 in 1998.’

Elaborating, he told BT, that having SingTel as a customer enhances the company’s reputation in the region which provides around one third of the company’s revenues.

‘Asia-Pacific is the fastest growing region for the company and with an endorsement from a customer like SingTel, we are confident that we will be able to attract more customers from the region,’ he said.

‘We do not sell launch vehicles, rather we sell launch services which includes all operations including insurance and financing. Even though we are not the cheapest solution available, customers find the total package attractive.’

Of the 10 launch deals signed by the company so far this year, three have been from Asia. Due to the lead time required to build the rockets, most of these launches will take place in the 2010-2011 timeframe.

Arianespace has won more than half of all commercial launch contracts open to competition worldwide in the past two years. This gives it a healthy order book from 27 customers.

SingTel’s Optus wins A$186.5m deal

SINGTEL’S wholly owned Australian unit Optus was yesterday awarded a managed network services contract by the Australian Taxation Office (ATO) worth A$186.5 million (S$218 million) over four years.

The contract, which is Optus’ largest contract win to date in the federal government sector, was awarded following a competitive tender.

‘Optus has a long history of working with federal government agencies, such as Medicare Australia and the Department of Immigration and Citizenship, on the implementation and management of large-scale IP-based networks and systems,’ said John Simon, managing director of Optus Enterprise and Business Group.

‘The awarding of this contract confirms confidence in our ability to deliver value, innovation and superior service to major government agencies as well as our vast experience in the deployment of IP (intellectual property) technologies. It marks a major milestone for Optus in the federal government sector and follows hot on the heels of our recent win with ANZ Bank.’

The contract will see Optus providing managed network services, which will include data and voice carriage, telephony and video conferencing.

It will also implement and manage a new application-aware IP network for more than 70 ATO offices on the Optus Evolve network that will deliver services to more than 23,000 ATO employees nationwide.

‘The financial impact of this contract is not material to the SingTel group,’ said a SingTel spokesman.

For the group’s financial year ended March 31, it posted an operating revenue of $14.9 billion.

As at SingTel’s fourth quarter ended March 31, Optus accounted for 29 per cent of group Ebitda. Optus’ net profit for the quarter rose 17 per cent to A$193 million, but was dampened by a weaker Australian dollar.

SingTel’s counter closed 12 cents higher at $3.02 yesterday.