Singtel

Kim Eng on 11 May 2012

Within expectations. FY12 results and dividends were in line with market expectations. FY13 looks set to be a repeat of FY12, but with the additional dampener of start-up losses from its new Digital L!fe division to contend with. Guidance was subdued, with no catalysts to drive either growth or yield. We maintain our SELL call, with a SOTP-derived target price of $2.82. The dividend yield of 4-5% is not attractive when compared to M1 or StarHub’s better yields and higher potential for earnings upside.

Nothing much to shout about. Underlying net profit of SGD3,676m (down 3% YoY) for FY12 and SGD1,023m (up 3% YoY) for 4Q12 were in line with expectations as 4Q12 benefited from seasonally lower operating costs. However, free cashflow declined YoY to SGD3.5b on the back of lower dividend contributions from associates and higher capex in Singapore and Australia. As a result, final dividend was kept at SGD0.09 a share (68% full year payout).

Subdued guidance. FY13 guidance was subdued, with Singapore and Australia revenue to grow in the low single digits and EBITDA to remain stable. Management expects margins to stay under pressure this year as the Digital L!fe division will still be in start-up stage. Australia is preoccupied with fend off competitors willing to sacrifice margins for market share, while in Singapore, TV content cost could be a source of downside to earnings as the Barclay’s Premier League and other “iconic” content comes up for bidding. The current slide in the Indian rupee could also turn into a longer-lived trend.

No upside for dividends. Also, with free cashflow expected to remain stagnant and SingTel already paying out 83% of free cashflow as dividends, there is unlikely to be further upside to dividends. Further, capex is expected to rise further this year on the back of heavy investments in expansion of 4G network coverage and new investments in data centers to support new business initiatives, such as a new cloud computing service targeted at SMEs.