Short term stumble but fundamentals intact

SingTel stumbled in 2QFY12 but the fundamentals of its units are improving, except for Australia’s Optus which will continue to face stiff competition over the next six months. Bharti’s performance should improve, based on consensus.

We remain optimistic on SingTel Singapore, Telkomsel and AIS. We trim our forecast but raise our SOP target price after rolling it forward. SingTel remains an OUTPERFORM with likely catalysts being improving fundamentals of its key units and attractive dividend yields.

What Happened

SingTel held its quarterly conference call after releasing its 2QFY12 results. The main takeaways are: – Optus expects competition to remain intense in Australia over the next six months.

– Capex in Singapore should ease going forward vs. FY12 despite more spending on LTE and the submarine cable between Singapore and Japan because its shift to a multimedia business model is less capital-intensive.

– SingTel is proposing to acquire 2% of AIS because it believes it can continue to add value to the company.

– Cannibalisation of SMS by data is small among its associates vs. in Singapore and Australia because of the low smartphone penetration in the developing countries. SingTel also allayed concerns over cannibalisation as Singapore and Australia bundles voice/SMS/data vs. in Europe where it is priced separately.

What we think

No major surprises from the call. Our positive view of SingTel remains unchanged. The most notable point in our view is the continued intense competition in Australia, which is our key concern for Singapore. However, we think the rest of its units are performing well or should improve going forward, especially Bharti.

What You Should Do

We believe investors should remain invested in SingTel. The stock is defensive with most of its units performing well while dividend yields are an attractive 5%, which should help weather the market uncertainties.

SingTel Q2 profit dips 1.2%

Regional associates drag down group net profit to $882m from $892m

SINGAPORE Telecommunications’ (SingTel) second-quarter earnings disappointed as its regional associates dragged down group net profit 1.2 per cent to $882 million from $892 million a year ago.

Earnings per share eased to 5.53 cents from 5.56 cents.

SingTel, however, managed to grow top line for the July-September period 4 per cent to $4.6 billion from $4.4 billion last year, helped by strong customer growth in Singapore, Australia and other overseas units.

Weakened regional currencies against the Singapore dollar were much to blame for the 12 per cent decline in pre-tax earnings at SingTel’s regional associates to $471 million. Major regional currencies such as the Indian rupee and Indonesian rupiah slid between 5 and 9 per cent against the Singapore dollar.

In constant currency terms, the decline would have been less severe at 6 per cent.

SingTel’s associates increased their proportionate contributions to group turnover by 4.4 per cent to $2.78 billion from $2.66 billion last year.

Pre-tax profit at Bharti Airtel, which operates in South Asia and 17 African countries, was the worst performer, falling 37 per cent y-o-y to $131 million.

Its Indian operations were hit by 3G costs and higher interest expenses.

Meanwhile, the floods in Thailand have not affected SingTel’s Thai associate Advanced Info Systems (AIS), said Hui Weng Cheong, SingTel’s CEO International. Affected base stations are ‘getting back on track’ and telecomms usage has increased during the flooding, he said.

In its home territory, revenue was flat at $1.6 billion, as only the mobile business of the four units grew. The mobile business grew 9 per cent y-o-y to $477 million from $437 million on the back of strong customer growth. SingTel scored a consecutive quarter of market share gains and now commands 45.5 per cent of the mobile market here.

Where faster Long-Term Evolution (LTE) mobile networks are concerned, SingTel’s CEO Singapore Allen Lew said that SingTel intends to explore a different pricing strategy from that of 3G.

However more details would be delivered in a month’s time, he said.

‘I think we are going to try for LTE to change the game in terms of how we price data,’ said Mr Lew.

‘Certainly, we don’t want LTE to go the way of 3G where there’s unlimited data and people giving us feedback about inconsistent speeds.’

SingTel also said that its long-term strategy of upping its stake in associates remains unchanged. It increased its holding in AIS by 2 per cent in early November for $328 million.

‘In other associates, if there are stakes available, we are definitely prepared to get in on the right terms and conditions,’ said Chua Sock Koong, SingTel group CEO.

SingTel ended yesterday two cents up at $3.18.

SingTel Q2 profit dips 1.2%

Regional associates drag down group net profit to $882m from $892m

SINGAPORE Telecommunications’ (SingTel) second-quarter earnings disappointed as its regional associates dragged down group net profit 1.2 per cent to $882 million from $892 million a year ago.

Earnings per share eased to 5.53 cents from 5.56 cents.

SingTel, however, managed to grow top line for the July-September period 4 per cent to $4.6 billion from $4.4 billion last year, helped by strong customer growth in Singapore, Australia and other overseas units.

Weakened regional currencies against the Singapore dollar were much to blame for the 12 per cent decline in pre-tax earnings at SingTel’s regional associates to $471 million. Major regional currencies such as the Indian rupee and Indonesian rupiah slid between 5 and 9 per cent against the Singapore dollar.

In constant currency terms, the decline would have been less severe at 6 per cent.

SingTel’s associates increased their proportionate contributions to group turnover by 4.4 per cent to $2.78 billion from $2.66 billion last year.

Pre-tax profit at Bharti Airtel, which operates in South Asia and 17 African countries, was the worst performer, falling 37 per cent y-o-y to $131 million.

Its Indian operations were hit by 3G costs and higher interest expenses.

Meanwhile, the floods in Thailand have not affected SingTel’s Thai associate Advanced Info Systems (AIS), said Hui Weng Cheong, SingTel’s CEO International. Affected base stations are ‘getting back on track’ and telecomms usage has increased during the flooding, he said.

In its home territory, revenue was flat at $1.6 billion, as only the mobile business of the four units grew. The mobile business grew 9 per cent y-o-y to $477 million from $437 million on the back of strong customer growth. SingTel scored a consecutive quarter of market share gains and now commands 45.5 per cent of the mobile market here.

Where faster Long-Term Evolution (LTE) mobile networks are concerned, SingTel’s CEO Singapore Allen Lew said that SingTel intends to explore a different pricing strategy from that of 3G.

However more details would be delivered in a month’s time, he said.

‘I think we are going to try for LTE to change the game in terms of how we price data,’ said Mr Lew.

‘Certainly, we don’t want LTE to go the way of 3G where there’s unlimited data and people giving us feedback about inconsistent speeds.’

SingTel also said that its long-term strategy of upping its stake in associates remains unchanged. It increased its holding in AIS by 2 per cent in early November for $328 million.

‘In other associates, if there are stakes available, we are definitely prepared to get in on the right terms and conditions,’ said Chua Sock Koong, SingTel group CEO.

SingTel ended yesterday two cents up at $3.18.

SingTel gets more cellphone customers

Increase is due to fast-growing mobile phone market in Africa, South Asia

THE fast-growing mobile phone market in Africa and South Asia has driven Singapore Telecommunications’ total mobile customer base to 424 million as at Sept 30, a 15 per cent increase from last year’s 368 million.

SingTel associate, Airtel, added 39.3 million new customers in South Asia and Africa.

Its total subscriber base is 227 million, with 173 million from India alone.

It also managed to grow its subscriber base in Africa by 21 per cent or 8.4 million people. It expanded into the fastest-growing African country, Rwanda, in the third quarter, offering 2G and 3G mobile services there.

Globe Telecom Inc, SingTel’s joint venture with Ayala Corp in the Philippines, yesterday announced it will spend US$790 million to upgrade its network and technology systems to expand its footprint and cut costs.

Its mobile customer base as at Sept 30 was 29 million, up 15 per cent from 25 million last year.

Globe’s ‘biggest and most significant investment’ in 20 years will help it meet an anticipated increase in voice and data demand and to ward off competition from market leader Philippine Long Distance Telephone.

PLDT last month wrapped up the US$1.7 billion purchase of Digital Telecommunications Philippines, which gave it 70 per cent control over the domestic mobile phone market.

Globe will spend US$700 million over the first five years to give its network a facelift and the remaining US$90 million to re-engineer its IT systems over two years.

Globe will most likely sell US$550 million and US$600 million of bonds in the next six to eight months to fund the investment.

SingTel will be announcing its second quarter results today.

Bharti’s 2Q12 below

Bharti’s 2Q12numbersmiss ourestimateswhich arebased on consensus due to upfront and non-recurring finance charges and lower-than-expectedmargins. Despite this, we remain positive on SingTel, one of our top picks in the region.

We expect SingTel’s 2QFY12 core net profit to be flat qoq and yoy. Also, SingTel islooking to buy 2% of ADVANC from Shin Corp at THB130/share, a value which we deemfair. Maintain Outperformon improving fundamentals among its units and attractive dividends.

What Happened

Bharti’s 2Q11 highlights were:1) total minutes declined for the first time, under the influence ofseasonalityand the economy;and 2) mild revenue growth(+1.7% qoq)as there wasa fall in minutes and ARPUsin India while business in Africa grew strongly thanks to elasticity gains;3) margins were firm with strengthin Africa, and 4) one-off finance cost and regulatory payments. The conference callhighlighted that irrational pricing by the smaller players has beenignoredby the incumbents and also, Bharti’s confidence in Africa as it raisesits capex guidancethere.

SingTel’s 2QFY12 core net profit could come inflat qoqand trending a little below expectations. SingTel Singapore’s core net profit should decline qoq on lower seasonal margins. Associate contributions should rise despite weak contributions from Bharti, thanks to ADVANCand Telkomsel.

Lastly, SingTel is looking to buy 2.05% of ADVANC from Shin Corp at up to THB130/share.

What We Think

While Bharti’s 2Q is disappointing and its business in India/South Asia shows the strains of defending its market leadership, we note the effectsof seasonality. We believe that recentpricing hikes would also benefit Bharti once the effects flow through. In the longer term, minutes should flow back to the incumbent especially if consolidation occurs.

We are neutral onSingTel’s proposed acquisition of ADVANC, given that the valuation is fair.

What You Should Do

Maintain OUTPERFORM.Bharti’s results, while a disappointment, do not alter our positive view on SingTel which we like for the improving fundamentals among its unitsand yields. It is one of our top picks in the region.