Clouds fading away

SingTel has underperformed STI by 6% year to date. The good news is that regional currencies have rebounded back and risks due to Aussie National broadband Network (NBN) have subsided. The bad news is that Bharti witnessed its first ever market share decline in March 09. With more positives than negatives, we raise our FY10 earnings forecast by 6% but our numbers are still 3% below consensus. Upgrade to HOLD with revised target price of S$2.75, incorporating higher valuation for regional associates. We would be monitoring Bharti’s results and outlook on 30 Apr, for further update on SingTel.

The good news (i) Regional currencies (AUD and IDR) have rebounded back by 8-10% versus SGD in the hope of broader economic recovery, which is inline with our house view of recovery in 2H 2009 (ii) Aussie government decided to build NBN itself, which implies that SingTel dividends are secure, as it does not have to commit funds for NBN, in case it had won the award.

And the bad news (i) Latest data released by Cellular Operator association of India (COAI) shows that Bharti’s GSM market share declined for the first time in March 09, from 33.5% in Dec 08 to 32.5% in March 09, as Vodafone, BSNL and Reliance increased their market share (ii) Telkomsel has been gaining market share in Indonesia, but ARPU may weaken in ex-Java region, which account for more than half of its business, due to lower usage.

4Q09 earnings preview We expect SingTel to report net underlying profit of S$826m (-15% yoy, -1.5% qoq) on 14 May 09, lower than consensus’ S$887m, due to (i) impact of weak AUD, INR & IDR during the quarter (ii) lower roaming revenue in Singapore. (iii) Bharti faces headwinds due to tariff wars.

Upgrade to HOLD with revised target price of S$2.75. We have replaced market price of associates with target prices to reflect higher risk appetite. We narrowed holding company discount to 5% from 10% previously to reflect lower currency risks.

SingTel eyes online SME sales growth

Telco sees new Net store as another prong to reach SMEs

BULLISH on online sales, Singapore Telecommunications is set to ramp up its newest Internet shopping foray by offering more products and services through this sales channel, with an increased focus on small and medium-sized enterprises (SMEs).

In an interview following the launch of Business SingTelShop last week, the telco’s vice-president of business sales, Dumas Chin, told BizIT that ‘broadband, mobile applications and a range of business solutions’ will soon be sold through this store, which targets SMEs.

‘We are exploring the feasibility of offering solutions such as the SingTel HRAssist hosted HR (Human Resource) solution, and also our desktop security solution,’ said Mr Chin.

‘We expect more SMEs to make their purchases through this online store. We want to cater to the evolving buying preferences of our customers, who are increasingly becoming Web-savvy. The Business SingTelshop was launched to serve the rapidly growing number of SMEs that are turning to the Internet for their communications needs, information and transactions.’

Telco rivals MobileOne and StarHub have also been selling products and services to their customers over the Internet.

Both telcos operate longstanding e-shops which are primarily aimed at consumers and individual shoppers.

StarHub, however, could join SingTel on its new online SME sales turf.

A StarHub spokesman last week told BizIT that the telco is seeing more local businesses embracing online shopping and is now mulling the feasibility of setting up an Internet store that, like SingTel’s e-shop, caters to the SME.

But for now the momentum is with SingTel. Flagged off last Monday, Business SingTelShop was created to be a one-stop online mall for SMEs in Singapore, who can search, browse and purchase – using their credit cards – mobile devices and services that are for use locally.

Fresh impetus

The foray adds to SingTel’s existing SME sales channels, which include telephone hotline services and sales outlets.

And it adds fresh impetus to the telco’s online sales momentum, adding a new prong alongside SingTel’s consumer-focused e-shop, which was launched late last year.

This is the first time SingTel is selling to its business customers directly over the Internet.

Mr Chin declined to be specific about sales expectations that SingTel has set for Business SingTelShop at this early stage. He said that SingTel ‘hopes to learn more about the online preferences and purchasing behaviour of our SME customers’.

In the past few months, SingTel has ratcheted up its efforts to woo SMEs. Last December, it rolled out a $99-per-month managed human resource management package called SingTel HR Assist. This hosted package lets SMEs manage employee data, payroll and staff leave online.

Last month, the telco launched a range of subscription-based infocomm technology (ICT) packages dubbed ‘Smart Packages’, which includes communications and IT services like telephony, mobile services, broadband, e-mail, Web hosting, desktop security, data back-up and others.

Mr Chin is confident SMEs will embrace shopping online, not least because it will be a cheaper way to shop, as ‘transactions performed online require significantly less paperwork and manpower – resulting in substantial cost savings’.

To entice SMEs to shop online, SingTel will be coming up with ‘best deals’ that specifically targets online SME shoppers, including special offers not available at other sales outlets, he added.

The planets are aligning

• Falling risks and improving growth prospects. We believe SingTel’s outlook and risk profile continue to improve across the board.

• Lower risks at Optus. The Australian government’s decision to build the country’s broadband network has lifted concerns about Optus possibly being awarded the project, which would stretch the group’s finances. Also, the proposed merger between Vodafone and Hutchison Australia should rein in competition.

• Improving prospects in Indonesia. Telkomsel had added users at a faster clip in the first two months of 1Q09 despite seasonal weakness. Also, industry tariffs are creeping up, supporting our view that competition continues to pull back.

• Easing competition in India. We do not believe competition in India, which heated up in January, is sustainable. In fact, there are signs of easing price competition.

• Strengthening regional currencies. The market is expecting the Singapore government to allow the S$ to depreciate to support the ailing economy. This should benefit SingTel as it derives 72% of its PBT from overseas. The A$ and Indian rupee have appreciated 8% and 6% against the S$ in the last two months.

• Maintain OUTPERFORM, though we have lowered our FY09-11 core net profit estimates by 0.1-2.5% and sum-of-the-parts target price by 5cts to S$3.05, mainly after lowering our numbers for Bharti. Key re-rating catalysts could include qoq improvements in core net profits at its key units, strengthening regional currencies and further signs of an easing price war in India.

SingTel signs deal for $1.08b credit facility

SINGAPORE Telecommunications (SingTel) has secured credit facilities of $1.08 billion to refinance existing facilities and for general working capital.

The agreement for the three-year term loan facility was signed through wholly owned subsidiary SingTel Group Treasury with the Bank of Tokyo-Mitsubishi UFJ, DBS Bank, OCBC, UOB, Calyon, Citibank, and the Hongkong and Shanghai Banking Corporation.

‘The committed facility of $1.08 billion will meet the group’s refinancing requirements for the next financial year ending March 31, 2010,’ said Jeann Low, SingTel’s group chief financial officer.

SingTel generated $2.3 billion in free cash flow after capital expenses for the nine months ended Dec 31, 2008. Net debt as at end- 2008 was $6.6 billion, translating to a net debt gearing ratio of 25.5 per cent.

The ability of Singapore’s largest telco to secure fresh credit to refinance existing facilities at a time when banks around the world are tightening their purse strings is a feat which market analysts attribute to its sound credit rating.

SingTel has an A+ rating from Standard and Poor’s and an Aa2 rating – the third-highest on a scale of 10 – from Moody’s Investors Service.

Its new loan facility comes on top of a separate tranche of $1.07 billion worth of credit facilities obtained last November, also for refinancing existing facilities and for general working capital. These include a $350 million five-year facility with the Bank of Tokyo-Mitsubishi UFJ, DBS Bank and OCBC. The other is a 3.5-year A$725 million (S$763 million) syndicated revolving credit facility signed by its Australian subsidiary Optus with a group of five banks.

While other blue chips such as DBS Group and CapitaLand have resorted to cash calls to raise funds, SingTel has stated it will call for a rights issue only as a last resort.

‘While the credit markets are available, we will continue to get money from credit markets,’ SingTel Singapore CEO Allen Lew told BT previously.