Singtel

CIMB on 5 Jun 2012

GIVEN the lack of catalysts, SingTel remains a "neutral" with a sum-of- parts based target price of S$3.36. While we are concerned about the falling regional currencies, the share price downside should be ring-fenced by its modest dividend yield of 4-5 per cent. StarHub remains our top Singapore telco pick.

SingTel is refreshing its smartphone plans by bundling less data but more SMS. It now offers between 2GB and 12GB of data compared to a flat 12GB across all plans previously, and 25-45 per cent more SMS. SingTel also launched an LTE (long-term evolution) service for smartphones, the first telco in Singapore to do so.

This is a step in the right direction but earnings impact is minimal. We take a positive view of SingTel's lower data bundle but are not surprised as the telco has said that it wanted to better monetise the rising data usage. SingTel noted that 90 per cent of users do not use more than 2GB per month, which means that it is only able to monetise 10 per cent immediately. Nonetheless, average revenue per user for these LTE users should be higher than for 3G plans. Also, as usage rises over time, more users will be compelled to upgrade their plan.

SingTel is bundling more SMS but this is unlikely to resonate with users given the waning usage in favour of data messaging. Under its new plans, SingTel now bundles more SMS but substantially less data than its rivals. LTE take-up will be gradual and will improve when more handsets with better battery life become available.
Switch to StarHub for its more attractive dividends of over 6 per cent, which have upside potential given its low net debt/Ebitda of 0.5 times. SingTel's overseas units, which contribute 75 per cent of its earnings, risk being diluted by weaker regional currencies.
NEUTRAL