SingTel: Possible 4Q09 earnings surprise

Upbeat 4Q09 results likely. SingTel is due to report its 4Q09 results on 14 May before market opens. We had earlier expected revenue to show a modest QoQ decline (<5%) as we expect the economic slowdown to exert a slight toil on its business; the weaker AUD is also expected to negatively impact its consolidated revenue. But based on the relatively upbeat quarterly results from its peers MobileOne and StarHub recently, as well as the strong 4Q09 results from 33%-owned associate Bharti Airtel, we may see better- than-expected showing from SingTel. Another area of earnings surprise could also come from forex gains, as the regional currencies have appreciated some 2-5% against the SGD over the quarter.

Systems are go for NBN. Separately, the Infocomm Development Authority (IDA) recently announced the successful achievement of the contractual and financial close (CFC) by OpenNet, the NetCo of the NBN (national broadband network). SingTel has a 30% stake in OpenNet. As such, OpenNet has now obtained its Facilities-Based Operator License for it to commence the roll out of the NBN, where the plan is to achieve 60% coverage of all residential premises and non-residential buildings by end-2010, and 95% of all residential premises and non-residential buildings by 2012.

Divestment of SingTel's underground assets. The IDA has also approved OpeNet's implementation plan of the AssetCo, which will be established as a business trust within 24 months of the CFC, and will own and control the relevant underlying passive infrastructure assets that are used to support OpenNet's deployment. SingTel will transfer these underlying assets to the AssetCo; it will also need to reduce its unit holdings in the AssetCo to less than 25% within 60 months of OpenNet's CFC. We view the move positively as it would allow SingTel to monetize its assets.

Room for upward revision. In line with the recovering equity markets around the globe, we note that share prices of its listed associates have also risen over the quarter, with Bharti up as much as 16%. However, we are still not entirely convinced that a sustainable recovery has taken place, as the economic fundamentals continue to lag the sharp rally in share prices. Still, should the global economic recovery come earlier and stronger than expected, we see room to raise our FY10 estimates. For now, we maintain our SOTP fair value of S$3.09 until we see the 4Q09 results. In the meantime, we retain our BUY call.

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