Bharti's profit falls for 9th straight quarter

Bharti Airtel, India's biggest mobile-phone carrier by subscribers, reported its ninth straight quarterly profit decline, hurt by intense price competition, higher interest costs and foreign-exchange fluctuation losses.

The company, controlled by billionaire Sunil Mittal, has lost market share in the past year to smaller rivals in the country's fiercely competitive mobile market, where carriers operate on wafer-thin margins with cheap voice calls accounting for a bulk of revenue.

Mobile data, which offers higher margins, is at a nascent stage in India, and the takeoff of premium third-generation data services has been slower than what the industry had initially expected in a price-sensitive market.

Cellular operators, including Vodafone's local unit, have also been hit by fresh uncertainty in recent months after a court ordered cancellation of all mobile-phone permits awarded in a scandal-tainted sale in 2008.

Selling down Far EasTone

SingTel has sold its entire 3.98% stake in Far EasTone for S$339m or S$0.02/share. This is the first time it has sold any of its assets, in our memory. We view this positively as FET was purely a passive investment; the impact on SingTel is insignificant.

Proceeds will only reduce its net debt/EBITDA by 0.05x to 1.06x, and does not raise the likelihood of a special dividend. No change to our Neutral rating, SOP target price or estimates. Switch to StarHub for potential upside to already-attractive dividends.

What Happened

SingTel has sold its entire 3.98% interest in Taiwan’s Far EasTone Telecommunications for S$339m cash or S$0.02/share. It will recognise a gain of S$118m in 1QFY13.

What We Think

This is mildly positive but does not move the needle much. The cash raised will only nudge its net debt/EBITDA down by 0.05x to 1.06x, not sufficient for SingTel to pay special dividends. SingTel last paid a special DPS of 10cts in 4QFY11 when its net debt/EBITDA fell to 0.8x, substantially below its target of 1.5x. No change to our earnings estimates as the sale is close to the S$361m we have imputed in our SOP valuation.

What You Should Do

Switch to StarHub for potential upside to its already-attractive dividends. SingTel lacks re-rating catalysts, in our opinion. It faces headwinds from a weakening Indian rupee, regulatory risks in India and stiff competition in Australia. However, risks should be mitigated by its modest dividend yields of 5-6%.

Selling down Far EasTone

SingTel has sold its entire 3.98% stake in Far EasTone for S$339m or S$0.02/share. This is the first time it has sold any of its assets, in our memory. We view this positively as FET was purely a passive investment; the impact on SingTel is insignificant.

Proceeds will only reduce its net debt/EBITDA by 0.05x to 1.06x, and does not raise the likelihood of a special dividend. No change to our Neutral rating, SOP target price or estimates. Switch to StarHub for potential upside to already-attractive dividends.

What Happened

SingTel has sold its entire 3.98% interest in Taiwan’s Far EasTone Telecommunications for S$339m cash or S$0.02/share. It will recognise a gain of S$118m in 1QFY13.

What We Think

This is mildly positive but does not move the needle much. The cash raised will only nudge its net debt/EBITDA down by 0.05x to 1.06x, not sufficient for SingTel to pay special dividends. SingTel last paid a special DPS of 10cts in 4QFY11 when its net debt/EBITDA fell to 0.8x, substantially below its target of 1.5x. No change to our earnings estimates as the sale is close to the S$361m we have imputed in our SOP valuation.

What You Should Do

Switch to StarHub for potential upside to its already-attractive dividends. SingTel lacks re-rating catalysts, in our opinion. It faces headwinds from a weakening Indian rupee, regulatory risks in India and stiff competition in Australia. However, risks should be mitigated by its modest dividend yields of 5-6%.

Proposal to raise spectrum rates sinks telco stocks

Regulator wants ten-fold rise from the controversial 2008 sale prices

The Indian telecoms regulator's proposal for a near 10-fold increase in basic mobile phone spectrum prices and switching of radio spectrum given to older carriers knocked down shares of leading operators on fears that the big potential payouts will further hurt an already bleeding industry.

Shares in top mobile operator Bharti Airtel fell as much as 7.5 per cent yesterday morning to their lowest level since July 2010, while fourth-ranked Idea Cellular fell as much as 9.8 per cent, before cutting some losses. Second-ranked Reliance Communications fell as much as 3.4 per cent.

The country's telecoms sector, the world's second-biggest by subscribers, has been battered by ferocious competition and a scandal over below-market price sale of lucrative mobile phone permits in a 2008 state sale process.

The Supreme Court has ordered 122 permits granted to eight operators in the 2008 sale be revoked in early June and asked the government to redistribute radio airwaves through an open bidding process.