Singapore Telecommunications

UOBKayhian on 3 Feb 2015

FY15F PE (x): 17.4
FY16F PE (x): 16.7

Foreign exchange rates usually work against SingTel. Singapore Telecommunications (SingTel) has suffered from the appreciation of regional currencies against the Singapore dollar in the past. In particular, SingTel was negatively affected by a “taper tantrum”, which started in May 13 when the US Federal Reserve Chairman Benjamin Bernanke uttered the infamous word “tapering”, causing massive capital outflows and significant depreciation of regional currencies. The negative impact was severe for the Indian rupee and Indonesian rupiah. Providing growth from developing and emerging countries. SingTel benefits from pricing stability and growth in Indonesia and India, the two largest markets for its regional mobile associates. Growth from Telkomsel is driven by an increase in data traffic and expansion of subscriber base, while growth from Bharti Airtel is driven by the expansion of its subscriber base and financial deleveraging. Re-iterate BUY. We have raised our target price for SingTel from S$4.32 to S$4.39 based on DCF (required rate of return: 5.5%, terminal growth: 1.0%). We have used a lower assumed beta of 0.65 instead of the previous 0.7 as the easing strength of the Singapore dollar would have a positive impact on earnings from overseas markets. We believe SingTel deserves to trade at a premium due to its diversified earnings base and geographical footprint.