Singtel

OSK Research on 14 Feb 2013

SINGTEL reported a 2 per cent y-o-y decline in 9M FY2013 core profit to $2.61 billion on the back of a 2.4 per cent contraction in revenue to $13.7 billion.

Core earnings for the quarter narrowed 1.2 per cent sequentially (down 2.3 per cent y-o-y) to $874 million. The share of associate contributions fell 15.3 per cent q-o-q (up 2.2 per cent y-o-y) to $486 million in Q3 FY2013, albeit up 6 per cent YTD to $1.57 billion.

The group's overall results continued to reflect weaknesses across key regional currencies, in particular the Australian dollar, Indian rupee and Indonesian rupiah, which depreciated 3-13 per cent y-o-y (down 2-3 per cent q-o-q) against the Singapore dollar.

At 70 per cent of our and 71 per cent of consensus estimates, SingTel's 9M FY2013 results narrowly missed our expectations, albeit in line with street estimates.

The key takeaways from the results were: extended losses at its new digital life business which had diluted overall group margin; higher Singapore and Optus revenues marked by seasonality; and weaker regional currencies, specifically the Australian dollar, Indian rupee and Indonesian rupiah which impacted revenue and profits when translated.

Optus' revenue improved 2 per cent q-o-q after three consecutive quarters of contraction or flat growth, but was down 4 per cent y-o-y in 9M FY2013, reflecting the lower mobile termination rate implemented in January 2012.

The restructuring of its business and unrelenting focus on cost and yield management contributed to the 3 per cent q-o-q and y-o-y growth in Ebitda, which translates into slightly stronger Ebitda margin of 25.2 per cent during the quarter.

SingTel's Ebitda fell 2 per cent q-o-q (up 1.4 per cent y-o-y) in Q3 FY2013, reflecting the start-up losses at Amobee which contributed $21 million in revenue for the quarter and $49 million in 9M FY2013.

Mobile revenue improved 4 per cent q-o-q (Q2 FY2013: up 2 per cent q-o-q), supported by seasonally higher roaming revenue, increased handset sales and stronger subs net-addition.

SingTel added 64,000 mobile subscribers during the quarter and signed-up a further 8,000 mio-TV customers with total pay-TV subs crossing the 400,000 mark in January as it continued to chip away StarHub's dominance in the pay-TV segment through increased channel offerings.

SingTel's bright spots are in Indonesia and Thailand. The stronger showing from Telkomsel and AIS offset Bharti's weaker numbers.

Overall contributions from associates were negatively impacted by the steep depreciation of the respective currencies.

Management has maintained its prior guidance of consolidated revenue to decline by low single-digit Singapore revenue to grow at low single digit; low single-digit decline for Optus' revenue (which was downgraded post Q2 FY2013 results); and stable Ebitda for both Singapore and Optus operations.

Our forecasts and fair value are under review pending the results conference call with management. We are likely to finetune our forecast but keep our "neutral" recommendation on the stock.

NEUTRAL, UNDER REVIEW