SingTel: Potential good news priced in

Good results from forex gains. We expect SingTel to report 1Q10F net underlying earnings of S$980m (+13% yoy, +2% qoq) on 13th Aug, ahead of consensus estimates of S$920m-S$930m. Last year, exchange rate losses exacerbated SingTel’s earnings but FY10F should be a recovery year. Based on quarterly results posted by Bharti and half yearly results posted by PT Telkom, we estimate that mark-to-market gains from these two associates in 1Q10F to be about S$60m. Besides, associates from Pakistan and Bangladesh may also report foreign exchange gains. In view of the forex gains and better performance of Telkomsel, we raised SingTel FY10F earnings by 2%, which are 4% ahead of consensus now.

Trading above the regional valuations. At 8.7x EV/EBITDA, and 14.5x FY10F PER, SingTel is trading above the regional EV/EBITDA of 5.5x and PER of 14.4x. Three key changes in our SOTP valuation are (i) DCF valuation of the core business (Sing-Optus) are based on lower WACC of 8.5% instead of 9.5% earlier, implying core FY10F PER of 14x vs 12x earlier. (ii) Telkomsel target price at 15x PER rolled over to 2010 from 2009 earlier. (iii) Higher target price for AIS.

Potentially higher stake in Bharti? Aggressive network expansion plans of new players such as Telenor and Sistema in the next 12 months may restrict Bharti’s earnings growth to single-digit from next year onwards. As such, acquiring more stake at 9x Bharti’s FY10F EV/EBITDA and 15.5x FY10F PER may not be a significant catalyst for SingTel.

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