SingTel - 1Q12F may disappoint (DBSVickers)

HOLD S$2.95 STI : 2,884.00

Price Target : 12-month S$ 3.20

Reason for Report : 1Q12F earnings preview

Potential Catalyst: half yearly dividends

DBSV vs Consensus: 2% below consensus as Singapore earnings can decline despite stable EBITDA

• SingTel may report 1Q12F earnings of S$920m (-2% YoY) on 11th Aug, slightly below street expectations.

• The key negatives would be weak Singapore earnings besides lower contribution from Bharti

• In the long term, Bharti should improve although Singapore & Australia may face more challenges. HOLD for 6% yield at 12x FY12F PE (Hist. average 13.4x)

1Q12F results on 11th Aug may be unexciting. We estimate that SingTel may report 1Q12F earnings of S$920m (-2% YoY, - 8% QoQ). This may be slightly below the street expectations of flat to low-single digit growth in earnings

Singapore earnings could be the key disappointment Management has guided for stable Singapore EBITDA in FY12F taking into account high content cost for full FY12F and competitive pressures in the enterprise broadband business. However, depreciation & amortization expenses have been rising in the light of higher capex for mobile & submarine networks along with IT infrastructure. So stable EBITDA may not translate into stable net earnings. We estimate that 1Q12F Singapore earnings could decline 15% YoY, although improve 4% QoQ. Optus earnings may decline 17% QoQ, as 4Q11 (seasonally strongest quarter) benefited from one-off cost savings.

Associate contribution can slip marginally. Bharti reported 14% QoQ decline in 1Q12 earnings, which can partly be offset by 10% QoQ growth at Telkomsel. However, overall associates’ contribution may decline 3% QoQ due to strong Singapore dollar versus regional currencies (INR & PHP).

With 3% earning growth in FY12F, investors might appreciate regular yield exceeding 6%. SingTel is trading at ~12x FY12F PE below its four-year average of 13.2x. However, we believe that SingTel may not outperform unless earnings payout ratio is raised above 80% or capital management is performed more frequently. HOLD with SOP-based TP of S$3.20.