Singtel:Key takeaways from Investor Day

Increasing mobile leadership. SingTel doesn’t seem to be contended with its comfortable lead in both the post-paid and pre-paid mobile segments. It has an overall market share of 46%, up from 40% a year ago. The launch of the iPhone 3G was an integral part of SingTel’s strategy to extend its lead. In fact, Allen Lew, CEO of SingTel Singapore, proclaims that it is the “best thing to happen to SingTel”. The telco garnered important lessons on key information, like what datasavvy subscribers are likely to watch and what are some of the most popular applications. Approximately 30% of the activations are new mobile clients and ARPU is about 1.5 times higher than its post-paid base. Management is confident that the company will reap good returns in time to come, and the knock in margins (due to higher SAC arising from handset subsidy) is a sacrifice it has to make in the near term.

Growing and diversifying ICT business. SingTel aims to sell its one-stop converged ICT services. Corporates that go with SingTel will be able to enjoy bundled services like e-mail, web-hosting, security and network solutions. The proposition has become even stronger with the acquisition of Singapore Computer Systems (SCS), which has 2,000 employees and is expected to be completed this month at a cost of S$240m. This acquisition will allow SingTel’s systems integrator arm NCS to diversify away from Singapore government projects, which currently accounts for a big chunk of its business.

Repositioning the fixed line. The fixed line copper service, where it has a 94% market share, is still very important to SingTel, as it allows the company to “upsell” its mio TV service. In doing so, it has successfully repositioned the traditional home telephone socket. mio TV has 46,000 subscribers, still small compared to StarHub’s 500,000, but nevertheless a credible base. It also claims to have a “critical mass” of channels, with 56 currently.

Update on Next Gen NBN. As a key partner in the winning OpenNet consortium, SingTel is confident of benefiting from the award of the NetCo. As mentioned in previous reports, the red camp will have a few bites of the cherry – OpenNet’s use of its passive infrastructure, sale of the same infrastructure to AssetCo and the participation in profits of OpenNet. Mr Lew assesses that the cost to households post-NBN will be close to S$80 per month, which is apparently higher than its rivals’ estimates.

soource:DMG

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SingTel: S$2.42 NEUTRAL (TP: S$2.67) - Earnings drag

Below expectations. In the second quarter to 30 Sep 08, revenue increased 5.3% to S$3.89b while underlying net profit slid 12.3% to S$801m. The bottom line came in below our expectations due to a confluence of negative factors – high acquisition and marketing costs for the iPhone 3G initiative, weaker regional currencies, lower earnings from Indonesia’s Telekomsel resulting from price competition and post-tax loss from Pakistan-based Warid Telecom. Taking away the impact of the depreciation in Australia and regional currencies, SingTel would have registered a fall of 5% in earnings, which would still have been lower than our estimates.

No more clear blue skies. SingTel expects its core markets in Singapore and Optus to grow its revenue and EBITDA. But the weaker A$ will have an adverse impact on the earnings for the Group. What will hit it further is the lacklustre performance of its regional associates. Telekomsel, in particular, saw pre-tax profit slump 40% (in S$ terms) to S$113m. In our recent note where we downgraded SingTel, we had anticipated the associates’ to grow 3% in FY09, down from our earlier target of 9% growth. However, we are now expecting the associates’ contribution to be 15% lower compared to a year ago.

Earnings downgraded. As a result of the revised outlook, we have lowered our earnings by 9.5% from S$3.81b to S$3.45b (-12.3% YoY) in FY09 and 9.9% from S$4.12b to S$3.71b (+7.6% YoY) in FY10. We have also reduced our sum-of-the-parts valuation from S$2.80 to S$2.67, mainly due to the bleaker forecast for its associates. Maintain NEUTRAL.

source:DMG

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SingTel: Downbeat Update

SingTel issued an update on its performance yesterday, a week before it is due to release its
second quarter financial results. It touched on a few areas, including the impact of iPhone and the
strengthening S$.
iPhone 3G update. The Group first launched the iPhone 3G in Australia on 11 Jul 08, before
rolling out in Singapore, India and the Philippines on 22 Aug 08. All in, there were more than
170,000 iPhone activations for the Group and its associates. It managed to win over new
subscribers with its new service. Some 30% of the subscribers who signed up with SingTel were
new customers. For Optus, new sign-ons were as high as 55% of total activations.
Given that mobile subscriber acquisition and retention costs are expensed immediately upon
activation, the telco warns that iPhone initiative will actually have a "dilutive impact on earnings
and margins in the near term" despite a successful launch. Thus, the launch of iPhone is expected
to hit EBITDA by S$27m in Singapore and A$44m in Australia.
Telekomsel lowers guidance. Its Indonesia business Telekomsel is also facing some challenges,
with operating revenue expected to grow at low single digit and margins to decline around 5%.
This is largely within expectations.
Strengthening S$ a drag. SingTel derives two-thirds of its income from overseas and hence a
strengthening S$ has an adverse impact on the company’s bottom line. This is particularly true for the A$, which has fallen from 1.3 in Jul 08 to 0.99 currently against the S$. Based on
sensitivity analysis, a 1% fall in A$ vis-à-vis the S$ will result in a 0.2% fall in Group earnings.

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned