Call warrant at $2.60! They are as bullish as me :D

Extracted from CNA

SINGAPORE : A shock announcement from Singapore's largest company by market value.

SingTel says its Group CEO Lee Hsien Yang is to step down after being with the firm for more than 12 years. At a news conference on Friday, Mr Lee would not hint on why he is stepping down or where he is going next.However he has ruled out joining politics, saying he has no interest in pursuing such a career. The news, which came after the market closed, caught investors by surprise. A search is now on both within the company and globally to find a replacement. Mr Lee joined SingTel in April 1994 and has served as its CEO since May 95. He says he is stepping down from the helm when the telco is at a position of strength.

Mr Lee said: "Twelve years is a long time to stay in any single role and I think considerably longer than the average tenure of most CEOs. So I think it is appropriate that some point in time to move on and I suppose, in my view, it is as a good a time as any. The company is in a strong position. We have a strong management team in line, we have a board to see the process through and so I have informed the board of my desire to step down."

But Mr Lee is not letting on what he's going to do next, despite intense questioning by reporters at a news conference.

He added: "Given that my commitment to the board is to see through the transition to an end-point which we are not entirely clear about right now, I have not thought about what I might undertake. I suppose I would think about it carefully. To some extent, I suppose people have assumed that I would stay in SingTel almost forever and it's not as if I think about it everyday."

Whatever his thoughts, Mr Lee has certainly kept his cards close to his chest.

Looking back, Mr Lee says SingTel has evolved into a very different entity over the past twelve years.

Mr Lee said that one of the key priorities of SingTel when he stepped into the role as CEO was to diversify its earnings base geographically.

From a telco with nearly all of its earnings in Singapore back in 1994, SingTel now derives about two thirds of its profits overseas, with presence in 19 countries.

SingTel chairman Chumpol NaLamlieng praised Mr Lee for being an outstanding CEO with exceptional leadership and vision, saying his track record at SingTel speaks for itself.

Mr Lee says he will continue in his post until a successor has been appointed.

Clearly, this announcement came as a surprise to the market.

Market watchers have been hard pressed to find a reason for Mr Lee's intended departure and his next corporate move.

It is interesting to note one comment - that Neptune Orient Lines is now also without a Group CEO after former Acting Minister David Lim left the helm.

There's intense market speculation as to Mr Lee's successor.

Some market watchers say there are several potential candidates within SingTel currently who may be able to fill the top post.

The most senior executives after Mr Lee are Chua Sock Koong, the chief financial officer and chief executive of its international businesses, Allen Lew, the chief executive of the Singapore operations and Paul O'Sullivan who heads SingTel's Optus unit in Australia.

Some analysts are of the view that Mr Lee's departure will not mean there are uncertain times ahead - because there is likely to be a succession plan in place for a firm as large as SingTel.

Still in trade on Monday, there could be an initial knee-jerk reaction to SingTel's share price, which could result in downward pressure on the stock.

On Friday, SingTel's shares closed the session at $2.47, down 0.4 percent. - CNA/ch

Comment: This news really caught the market by surprise. I think they maybe a downward pressure in Singtel share price next week but that means there is a chance for investors to buy. :) I don't think a change of CEO will change the fundamental of the company.

BT, Published July 10, 2006

Who benefits most from capital reduction?

CAPITAL reduction and share buybacks, which have proliferated of late, are coming under increasing scrutiny as shareholders question the true beneficiaries of such exercises. Disgruntled shareholders say it is the management who work out the mechanics of such exercises who benefit the most. Take Singapore Telecommunications' upcoming capital reduction exercise.

Earlier this year, SingTel proposed to return a bumper $4 billion to shareholders, comprising a gross dividend of 10 cents per share, amounting to $1.7 billion and a capital reduction of $2.3 billion which will involve cancelling about 5 per cent of its total issued share capital and a payout of $2.74 for each share cancelled. For the majority of shareholders, this would mean one share cancelled for every 20 shares held.

SingTel said the exercise will improve shareholder returns without compromising its ability to make new investments. In a circular to shareholders on the proposed capital reduction, it said the exercise achieves a permanent improvement in capital structure when the paid-up share capital is reduced. On a proforma basis on the consolidated financial statements for FY2006, the capital reduction is expected to increase the return on equity from 20.6 per cent to 23.3 per cent, thereby increasing shareholder value. Earnings per share is expected to improve by 5.3 per cent from 24.98 cents to 26.30 cents.

Share options not adjusted

It also said that 'PricewaterhouseCoopers, the auditor of the company for FY2006, has reported that, in its opinion, no adjustments are required to be made to the terms of the outstanding share options and share awards consequent upon the capital reduction, under the respective rules of the share option schemes and the performance share plans.'

In other words, the number of share options or awards will not be adjusted although the total outstanding number of shares contracts. Ordinary shareholders will find themselves owning a smaller number of shares and will in a sense find their stakes diluted vis-a-vis management - who are awarded the highest number of options and award shares - and other SingTel staff eligible for such share plans.

According to SingTel's performance share plan rules, a variation in the share capital of the company is regarded as an 'adjustment event'. It added that any adjustment is at the absolute discretion of company directors.

BT has received feedback that some shareholders are unhappy that SingTel has decided not to adjust its share plans. They argue that not only will executives receive additional bonuses, share options and/or performance shares bought with the company's cash - and borrowings, if necessary - their yet-to-be-converted share options and or performance shares may also become more valuable as a consequence.

Management benefits more

They say it is not that shareholders do not benefit but that management gets to benefit more, and ask if that is fair. One counter argument here could be that current shareholders are getting paid for their cancelled shares while management staff get nothing if their to-be awarded share plans are reduced. But share plans are awarded upon performance. Those granted share plans sometimes may not get any if conditions are not met. Dividends which are declared and paid out before any share plans are vested or exercised are not 'saved' for the intended recipient.

Or SingTel could decide to set aside the money that would be paid for the cancelled shares in the share plans to be used for funding share plan awards. Under OCBC Bank's deferred share plan, dividends that will be paid during the three years that the deferred shares are held by the bank in a 'trust bonus pool' will be retained and used to fund the purchase of the shares.

Some shareholders also say that paying special dividends are a better and fairer way for companies to return excess money to shareholders.

SingTel will be holding its annual shareholders' meeting later this month on the 28th. Shareholders should use the forum to raise their objections, if any, to the capital reduction plan.

Extracted from BT

Asia-Pac telecom companies face challenges: S&P

SINGAPORE - Telecommunications operators in the Asia Pacific will face increasing risks as their business profiles change, although the overall outlook for the industry is stable, Standard & Poor's Ratings Services said in a report published on Tuesday.
Singapore Telecommunications, Telekom Malaysia, and SK Telecom are seeking opportunities for expansion in the region

'Deregulation, pressures on profitability from the change in the revenue mix to lower margin new services, higher capital-spending requirements, and declining market share are some challenges that Asia-Pacific telecom operators will face in the near to medium term,' said Standard & Poor's credit analyst Yasmin Wirjawan. 'Given their need to deliver shareholder value, these operators' ability to balance these risks and maintain their strong financial flexibility will be key to their future credit quality.'

Nevertheless, most telecom operators in the region have maintained stable credit quality in the past six months, benefitting from years of solid performance backed by high entry barriers, dominant market shares, and conservative financial profiles. These operators also exhibit strong business profiles and improved financial risk profiles, placing them in a better position to weather any volatility, according to the report.

In line with global trends, Asia-Pacific telecom providers have to deal with declining growth in fixed-line services. Growth in this segment has stagnated due to substitution by wireless services and rationalisation by increased broadband penetration. This is, however, partially offset by greater earnings diversity. S&P's expects capital spending to increase in this segment as fixed-line operators replace their public switched telephone networks with next-generation networks.

Slowing wireless subscriber growth in the saturated developed markets is likely to lead to more intense pricing competition in countries such as Japan, Singapore, and Australia. On the other hand, emerging Asia-Pacific markets, including India, China, and Indonesia, will offer greater growth prospects, as their penetration rates remain relatively low. -- REUTERS

BT, Published June 28, 2006

SingTel shares hit by talk of PCCW bid role

Banking source dismisses rumour; stock saw intra-day low of $2.47

SINGAPORE Telecommunications shares fell to a low of $2.47 in morning trade yesterday on talk that it was part of the Macquarie Bank consortium that is bidding for PCCW, Hong Kong's largest telco. But a banking source close to the bank dismissed the rumour, telling BT that 'SingTel is not part of the consortium'.

SingTel opened trading two cents firmer at its day's high of $2.51, but fell prey to the rumour which took it 1.2 per cent down to its day's low of $2.47 in morning trading. The stock managed to recover slightly to close at $2.49 for a one-cent loss.

A Reuters report citing a dealer said: 'There is this rumour about SingTel backing the bid for PCCW through Macquarie. That has sparked a selloff in SingTel.' SingTel and Macquarie Bank, through their spokesmen, said their companies do not comment on market speculation. Speculation and rumours continue to swirl around the bidding war for PCCW, which is 22.7 per cent owned by Singapore listed-Pacific Century Regional Developments (PCRD). Macquarie Bank, Australia's largest investment bank, is bidding against US private equity firm TPG Newbridge to buy the core phone and media businesses of PCCW.

Hong Kong newspaper, Apple Daily, yesterday said both parties may give up if they can't overcome Chinese opposition to the proposed deal. China's state-owned China Netcom, which last year paid US$1 billion for a 20 per cent stake in PCCW, has said that it does not want to see changes in the Hong Kong company. There was also talk that Macquarie was about to throw in the towel for the bid. But the banking source pooh-poohed this rumour, saying: 'I haven't heard any internal discussions on that (giving up) and it's certainly not the case.' According to AFP, Apple Daily, citing unnamed sources, said the two companies are prepared to drop their bids to avoid offending the Chinese authorities. Apple Daily, citing a person close to the Chinese government, said that China Netcom and Chinese authorities have submitted reports to the State Council, a main government organ, and are awaiting instructions about how to respond to a possible deal. The report said the Chinese authorities don't want foreign ownership of Hong Kong phone assets, but at the same time don't want to give the impression of Chinese corporations dictating deals in Hong Kong.

PCCW has disclosed that under a shareholder agreement, it needs the consent of China Netcom if it is to sell over 10 per cent of PCCW-HKT Telephone Ltd or more than 25 per cent of PCCW Media. The main business of PCCW-HKT Telephone Ltd is telecommunications services, while PCCW Media Ltd is pay-television and Internet services. China Netcom Group is the dominant provider of fixed-line telecommunication services in China's northern regions.

Meanwhile, Bloomberg reported yesterday that PCCW said it hasn't set a time limit for considering bids from possible buyers. The board hasn't considered what might be done with proceeds from a sale or whether the company would be privatised following any sale, PCCW said in a regulatory filing. PCRD yesterday eased a cent to 35.5 cents. It is up 18 per cent since news of the PCCW bid.

BT, Published May 15, 2006

Why investors are selling telco shares

SHARES of both Singapore Telecommunications (SingTel) and rival StarHub Ltd fell last week following what most investors would term as positive 'newsflows'. In addition, there were calls of upgrades of both stocks from some analysts.

On May 4, SingTel announced a hefty net profit jump of 61.3 per cent to $1.68 billion, boosted by exceptional items, for the fourth quarter ended March 31. At the same time, SingTel proposed to return $4 billion to shareholders, which works out to 23.7 cents a share - the highest payout so far. The distribution of 23.7 cents a share includes a final dividend of 10 cents, up from eight cents last year, and a share reduction where 1-in-20 SingTel shares will be cancelled. For each cancelled share, shareholders will get $2.74. The following day, SingTel shares rose briefly to $2.77, but ended last Thursday at $2.68.

SingTel's bumper net profit for the final quarter of its 2005-2006 financial year was not entirely unexpected and so too its handsome dividend payout plus capital reduction. The telco had been saying since last year that it would return surplus funds to shareholders. So why are some investors selling out?

In addition, broking houses UBS and Citigroup have also raised their 12-month target price, according to a Bloomberg report. Citigroup increased the target by 5.1 per cent to $3.10 while UBS is looking at SingTel hitting $2.91. Citigroup analyst Anand Ramachandran argued that SingTel represents the best single-stop shop to Asian telcos. SingTel's operational Ebitda (earnings before interest, tax, depreciation and amortisation) declined 8.4 per cent to $1.1 billion, reflecting the lower margins in Singapore and Australia. But robust growth in its regional mobile associates, in particular Bharti, India's leading private mobile telco, and 35 per cent of Telkomsel, Indonesia's largest phone company, drove the group's share of profits from associates to $469 million, up 48 per cent.

For the year, SingTel received $616 million of dividends from its associates, up 74 per cent. It owns 31 per cent of Bharti and 35 per cent of Telkomsel. Regionally, SingTel had a combined 85 million mobile-phone users at the end of March, up 31 per cent from a year ago. During the quarter, about seven million subscribers were added, mainly at Bharti and Telkomsel. 'Management's shareholder value focus brings further comfort,' said Mr Anand.

UBS analysts Syed Al-Idid and Simon Smiles wrote in their report that SingTel's current share price weakness is unwarranted. 'It's dividend yield of 8.8 per cent should offer downside risk protection to the share price,' they said. At last Thursday's price of $2.68, SingTel has gained 3.1 per cent this year, behind the 12 per cent rise of the benchmark Straits Times Index.

AIS's woes

Could investors worry about the performance of SingTel's Thai associate 21 per cent-owned Advanced Info Service (AIS)?

Recently, AIS, Thailand's biggest mobile-phone company, reported its third quarterly profit decline in four quarters after a consumer boycott and competition slowed subscriber growth. AIS's problems came following the sale of a controlling stake in its parent Shin Corp to Temasek Holdings, which is also the major shareholder of SingTel. AIS had 16.6 million subscribers at the end of first quarter 2006, a net addition of 225,000 net users. But closest rival Total Access Communication added 1.15 million net new subscribers for the same period to a total base of 9.7 million. AIS is not standing still. It has slashed its charges and the rate cut is expected to help boost its earnings this quarter. But are AIS's current woes putting off SingTel investors? Or are there other factors?

Merrill Lynch analyst Patrick Russell said SingTel's results are beginning to take on a familiar look with declining and disappointing earnings from the domestic business and Optus being more than offset by rapid growth from associates, particularly Bharti and Telkomsel. 'We think this trend will continue. As such, we would prefer investing directly in Bharti and Telkomsel at current valuations,' he said. SingTel would mark time until there was a turnaround in Optus and domestic operations, he added.

As for StaHub, it reported that its first-quarter profit doubled to $61.4 million as it attracted more subscribers for its mobile phone, Internet and cable television services. The company also announced a first-quarter dividend of 2.5 cents per share and seemed to hint that capital reduction may be used to return surplus capital to shareholders. There was no first-quarter dividend paid last year; StarHub paid a total of nine cents for 2005 and reiterated that it intended to pay a recurring minimum annual cash dividend of 10 cents per share in 2006. StarHub's profit was slightly below expectations of $66 million, based on the median estimate of five analysts surveyed by Bloomberg.

Bullish estimates

Still, OCBC analyst Winston Liew said StarHub's results were reasonable and maintained his 'buy' rating for the stock with a fair value of $2.45. Macquarie's Ramakrishna Maruvada is even more bullish, with a 12-month target of $2.60, as are the two UBS gentlemen. On Thursday, StarHub closed at $2.22. It is hard to decipher investors' intentions towards the two telcos, which are quite distinct entities, with one a major regional group and the other a domestic player. But both are highly regarded as well-run companies with capital management potential providing secured dividend payouts .

Perhaps the current weakness in the share prices of SingTel and StarHub reflects nothing more than some investors closing their portfolios ahead of the World Cup which kicks off on June 9. Investors looking for dividend yield stocks may have a window of opportunity to pick up SingTel and StarHub.

Extracts fm CIMB report dated 5-May-06, 

Associates to the rescue

• Above expectations. Underlying FY06 net profit was 8% above market and our expectations, due to strong associate contributions. 
  
• Pedestrian growth in Singapore and Australia. Revenue from Singapore and Australia grew 2% and 5% respectively. EBITDA margin fell 3.4% pts to 33.1% in FY06 due to price competition in Australia and contributions from lower-margin IT and engineering services. C2C was deconsolidated, resulting in S$618m of exceptional gains and the elimination of S$1.1bn of debt. 
  
• Associates saved the day. FY06 associate contributions surged 31%, led by Telkomsel and Bharti, to contribute to 40% of group PBT vs. 32% in FY05. 
  
• Capital management. SingTel is proposing a 10ct ordinary dividend (vs. 8cts ordinary and 5cts special in FY05) and a capital reduction by cancelling one in every 20 shares at S$2.74/share, yielding 5%. Payment is expected by Sep 06. 
  
• Unexciting growth ahead. FY07 revenue growth is expected to be in the single digits while EBITDA margin is projected to slide 1-2% pts on the back of price competition and contributions from lower-margin IT services. SingTel is still on the lookout for investments in Asia and may raise its stakes in associates, to sustain its medium-term target of double-digit earnings growth. 
  
• Raising forecasts and target price. We have raised our net FY07-08 EPS estimates by 5% and 10% respectively on the back of a 5% reduction in the share base and higher associate contributions. We have raised our sum-of-the-parts target price by 2cts to S$2.85 due largely to a revaluation of its associates, namely Bharti and Globe Telecom, whose share prices have surged in recent weeks. 
  
• Maintaining forecasts, target price and recommendation. We reiterate our TRADING BUY recommendation with catalysts being capital management and the surging prices of its associates. SingTel is not an Outperform as we do not see longer-term catalysts due to the stiff price competition in Australia and minimal growth potential in Singapore.

Extracted From GoldmanSachs Group Dated 25 April 06

SingTel will announce its 4QFYE March 2006 results on May 4. We are forecasting an underlying net
profit of S$682 mn in 4Q, implying a 12% qoq decline. For the full year of FY2006, we are forecasting a
2.7% yoy fall in underlying net profit (our forecast is in-line with the consensus). In our view, the market
has priced in potentially weak FY2006 results following the company's "profit warning" in Sep 2005 and
the weak share price performance over the past 12 months. We believe investors will instead focus on
the potential share price catalysts in the upcoming results announcement, including: (1) SingTel's
financial guidance for FY2007; (2) capital management initiatives and (3) possible C2C de-
consolidation. We maintain an OP rating and a DCF-driven price target of S$3.10. The key risks are
competition and the national broadband network in Singapore.

BT, Published April 19, 2006
Robinson Rd office block to go residential  

(SINGAPORE) Another ageing CBD office block looks set to make way for homes. BT understands that SingTel is likely to sell 71 Robinson Road - which houses Robinson Post Office - after securing provisional permission to redevelop the property into a 51-storey project.

Provisional approval has been granted for 315 apartments on the upper 44 storeys, which will be above a six-storey carpark podium and one level of commercial space. The commercial space is expected to be at street level. The plot ratio - the ratio of potential gross floor area to land area - approved is 11.2. This means the project can be built up to a gross floor area of 274,746 sq ft - a significant enhancement from the existing 99,383 sq ft.

Approval is subject to the site being rezoned from commercial use to residential with commercial use on the first storey. A development charge will be payable to the state in exchange for the right to develop a bigger project on the site. In addition, the successful developer is expected to apply to the authorities to top up the 24,531 sq ft site's lease from the remaining 45 years to the original 99 years.

The seven-storey building, formerly known as Crosby House, is at the corner of Robinson Road and McCallum Street. Other ageing office blocks expected to make way for homes include NatWest Centre and Asia Chambers - both in McCallum Street - 1 Shenton Way and the HMC Building in Mistri Road.

SingTel is expected to put up 71 Robinson Road for sale in line with its policy of divesting non-core property to redeploy the resources to its core telco business. In February, it sold a former telephone exchange in Old Holland Road for $30 million. Tenders have closed for two sites in West Coast and Hillcrest roads.

Extracts fm CIMB Report date 27-Mar-06,

Short term upside opportunity

• Upgrading our call. We are raising our recommendation to TRADING BUY from neutral because of: 1) the recent 6% de-rating while fundamentals are intact; 2) an imminent announcement of capital management; 3) a potential acquisition of Vodafone Australia; 4) raising our target price by S$0.08 to reflect higher share prices of SingTel’s associates.
  
• Share price to bounce back. SingTel’s share price has historically recovered 2-3 months after any share placement. Also, its MSCI free float-adjusted weighting is expected to rise to 45% from 40% which should be share price-positive in the longer term.
  
• Catalysts around the corner. SingTel is expected to announce its capital management plans in May. We estimate SingTel has excess cash of up to 27 cents/share. Should SingTel, be successful in acquiring Vodafone Australia, it would remove a price leader and would help restore pricing power.
  
• Upping target price. We are raising our target price by S$0.08 to S$2.83 after to reflect the re-rating of its associates vs 3 months ago.
  
• Underlying fundamentals still weak. SingTel is not an outperform because we do not see any longer term and sustainable catalysts for the share price due to the stiff price competition in Australia and minimal growth in Singapore.

Extracts fm SGX Announcements,

LIQUIDITY OF SINGTEL STOCK FURTHER ENHANCED

Temasek offer of SingTel shares

Singapore, 20 March 2006 – Temasek Holdings ("Temasek") is placing out approximately 770 million ordinary shares of SingTel representing approximately 4.6% of the outstanding shares of SingTel. Temasek’s shareholding in SingTel was 61.0% prior to this offering.

Ms Leong Wai Leng, Chief Financial Officer, Temasek said, "This offering will further improve the free float. This improved liquidity will enhance SingTel’s institutional investor base. The additional liquidity and broader base of institutional shareholders are expected to benefit all shareholders."

Goldman Sachs (Singapore) Pte. has been appointed as the bookrunner for this offering.

Extracts fm CIMB Report dated 10-Mar-06,

Optus eyeing Vodafone Australia?

According to The Australian daily, SingTel Optus is in talks with Vodafone Australia which could see it buy the infrastructure. The Australian has learned that Optus has had due diligence teams at Vodafone to review its network assets. It is understood that Optus would like to buy Vodafone’s assets to reduce costs and take out a competitor to reduce price competition. The possibility of Vodafone selling the Australian networks has emerged following a massive $66 billion writed-down. Optus and Vodafone are in the midst of deploying a shared 3G mobile network at a cost of about $700m.

Comments

While the news article alluded to Optus acquiring the infrastructure of Vodafone Australia without specifically saying whether it is buying its business, we think it would make sense for Optus to buy out the entire franchise (subscribers and assets). This will propel Optus to be the largest mobile operator with combined 9.8m subscribers vs Telstra’s 8.6m, and commanding 50% market share. More importantly, it would remove a key competitor and reduce price competition. Other benefits include greater economies of scale of operating a larger network and franchise such as marketing and personnel costs.

Vodafone Australia is a price leader, where it introduced the “capped plans” and sent the mobile industry into price war. Capped plans offer subscribers a deeply discounted bundle of mobile services for a fixed cost per month, e.g. A$49 per month for A$230 worth of voice and data.

How much is Vodafone worth? Based our a back-of-the-envelope calculations, using M1’s EV/subscriber of S$1,824, Vodafone’s 3.5m subscribers works out to be A$5.4bn, as tabulated in Figure 1 below. As there are no direct comparables in Australia, we feel that M1 in Singapore is fair benchmark given that : 1) both telcos operate in mature markets; 2) Vodafone’s blended ARPU, which is not disclosed, should be similar to that of Optus A$49. This figure compares with M1’s blended ARPU of S$47. While Vodafone should have a lower EV/sub vs M1 because of the more competitive environment in Australia vs Singapore, but this is compensated for by Optus looking to take over the company.

Valuation & Recommendation

We view the above development positively should it materialise. In the mean time, we remain NEUTRAL on SingTel with a SOP-based target price of S$2.75. While we do not see any immediate catalysts for the stock, share price should be supported by an expected announcement in capital management at its FY06 results announcement.

Extracts fm CIMB Report dated 9-Feb-06,

Saved by seasonality and associates

• In line. Annualised 9MFY06 core net profit matches CIMB-GK and market expectations. 3QFY06 core net profit nudged up 3% qoq and 4% respectively. The key takeaway is, weak operations in Singapore were compensated by seasonal strength at Optus and strong performances from associates. 
  
• Weak Singapore. SingTel’s Singapore operations declined slightly. 3QFY06 core net profit (Singapore + associates) declined 6% qoq largely due to the continued migration from dial-up to broadband, price competition affecting international telephony and a seasonal slowdown in IT and engineering services. 
  
• Seasonal strength at Optus. Optus’s 3QFY06 net profit rose 5% qoq on the back of a 4% qoq increase in revenue, from seasonal strength in the mobile division and a 2-month maiden contribution from Alphawest. 
  
• Associates saved the day. Contributions from SingTel’s associates surged 35% yoy and 16% qoq, to contribute 38% of group PBT vs. 35% in 2QFY06. 
  
• Lost board control in C2C. The new bond holders of C2C have replaced SingTel’s representatives on its board. Hence, we believe SingTel is likely to deconsolidate C2C. C2C has a negative carrying value of S$600m and S$664m of borrowings. Deconsolidation would lower its net gearing from 0.37x to 0.34x. 
  
• Weaker FCF. 3QFY0 FCF fell 37% yoy and 32% qoq to S$514m (annualised yield of 5%), largely on a 20% yoy and 15% qoq decline in operating CF. 
  
• Reaffirmed its guidance. SingTel maintained its guidance for FY06 i.e. mid-single-digit percentage decline in EBITDA on the back of flat revenue growth in Singapore, and lower EBITDA margins for Optus on some revenue growth. 
  
• Maintaining forecasts, target price and recommendation. We reiterate our NEUTRAL rating and sum-of-the-parts target price of S$2.75. Expectations of capital management are likely to limit downside risk from rising competition in Australia and stagnant growth in Singapore. Investors seeking growth should consider buying directly into SingTel’s associates.

Extracts fm CitiGroup Report dated 8-Feb-06,

First glance at 3Q results: Slightly higher on lower depr. and higher associates

• 3Q recurring profits at S$778m (+40.0 yoy; CIR at S$749m) – slightly higher than estimates on lower depreciation, slightly higher associate contributions
  
• Operating EBITDA at S$1.12bn for 3Q (-5.4%yoy, SBE – S$1.13bn) slightly lower than expected because of weaker margins in Singapore. Headline profits of S$885m reflect S$107m of forex gains (mainly from the SingPost part-stake sale)
  
• Five takeaways in the results at first glance –
  
  
  
  1. Optus: Higher than expected top-line growth (+4.5% yoy), but margins in line. (28.1% for 3Q vs. 28.6% in 2Q). EBITDA up 4.0% qoq, but down 4.4% yoy
     
  2. Singapore: Top line in line with expectations, but EBITDA margins weaker (down qoq/yoy) at 44.8%. Singapore EBITDA down 4% qoq/7% yoy
     
  3. Recurring associate contributions at S$430m for 3Q (higher than CIR S$412m), up 35% yoy; driven by growth at Telkomsel and Bharti. Associate dividends at S$523m YTD
     
  4. Group FCF down 13%YoY for 9MYTD but still a solid S$1.8bn. Solid balance sheet (net debt to EBITDA of 1.1x and EBITDA interest cover of 15x) continue to highlight balance sheet flexibility on higher dividends 
     
  5. No change to guidance – which is more or less in sync with our current estimates.
  
  
• We stay Hold (2L) with a price target of S$2.65