SingTel ($3.42) – unlikely to make bear trend reversal as earnings growth prospects remain bright with stock well supported around $3.36-44

The quick 7.6% one-week retreat from a major historic peak of $3.70 last Friday to $3.42 this morning was just as much a profit-taking reaction after this year’s 15.6% surge from $3.20 as to buying and selling ahead of results. 

It is unlikely though that there will be much serious follow-through selling as the group had just fallen short of analysts’ 3q expectations. Global equity funds’ bullish reasons for earlier strong purchases such as growing earnings profile from overseas expansion, attractive yield and strong balance sheet, remain valid with full year results due in early May unlikely to disappoint. 

In the meantime, the counter may consolidate with an attractive enough trading range to entice short term players. Keenly watched support levels are easily traceable so long as no unexpected detrerioration in fundamentals surface and even if this happens it is more likely to do with overall market conditions than anything specific to SingTel. 

Having crossed most multi year resistances starting from $3.56 (1999 high), $3.62 (2000 high) and more interestingly was on target with the 1993 debut year low of $3.70, the stock just fell short of two nearby targets of $3.72 (1998 high) and $3.76 (1993 close) as well as the 1994 high of $3.86. 

Although it has tripled from its 2003 low of $1.20 to $3.70, looking at the context of its prolonged undervaluation for much of the last 10 years, remaining at levels below 1993-96 highs while earnings had grown exponentially – in last 5 years (including fy06/07) alone, about $18b net profits or a third of its market cap of $54.7b have mostly gone into the bag – SingTel’s strong price recovery is hardly surprising. 

In fact there are strong grounds to argue for a continuation of the multi year rally to test the next significant historic resistance of $4.10 (1996 high). A test of the all time $5 high cannot be ruled out in the coming year or two especially in the light of the possibility of the ST Index moving towards the 4000 level before it finally peaks in the next 1-2 years. 

As for the next few months, the stock could move around $3.20-$3.80 depending on the severity of any expected market pullback. Support is trying to be established at last year’s $3.46 close and 1997 high and 1999 close of $3.44, underpinned by 1995 high of $3.36 and 1996 close of $3.30. This year’s $3.20 low is a stronger support, which could give way only in the unlikely event the STI tests its year’s 2945 low. 

Having made a breakout from $3 two months ago with the next low at $3.08, the fibonacci support points are $3.32, $3.40 and $3.46 and traders should watch for trading opportunities especially as technical indicators as MACD, RSI and bollinger bands would turn oversold at these levels.  

Resistance lies at $3.56, $3.62 and $3.70, which should be tested as any lingering concerns about today’s results announcement fade away. In any case today’s fall is very mild suggesting the bulk of the pullback could be over.  

A 10% correction from $3.70 would see the stock at $3.34. This morning’s $3.42 low is at the lower end of the $3.30-$3.70 short term trading band.  

SingTel now has 112.3 million mobile subscribers in the region - Feb 7, 2007
Extracted from www.AsiaOne.com
 

Singapore Telecommunications now has 112.3 million mobile subscribers in the region, after adding a record 11.5 million users in the fiscal third quarter ended Dec 31.It is the highest quarterly growth in mobile numbers registered by the SingTel Group, and also marks the third consecutive quarter that regional mobile subscribers have increased at a record pace.

In a statement to the Singapore Exchange today, SingTel said: "Compared to a year ago, the combined mobile subscriber base of SingTel, SingTel Optus and the Group's five regional associates grew 44 per cent.

"On a proportionate basis, SingTel's subscriber base in the seven markets – Australia, Bangladesh, India, Indonesia, the Philippines, Singapore and Thailand – increased 38 per cent from a year ago to more than 42 million." It said the growth was led by SingTel's regional mobile associates, including India's Bharti Airtel Ltd. and Indonesia's PT Telekomunikasi Selular. Bharti's total mobile subscriber base was 32 million. It added another record 4.9 million net mobile subscribers in the third quarter, a record growth of 96 per cent over last year's. Telkomsel added 3.1 million in net new subscribers in the quarter. Its total mobile subscriber base of 35.6 million represents an increase of 47 per cent increase compared to a year ago. The units added 11.4 million users, exceeding Singapore's 4.5 million population, during the quarter for a total of 103.8 million subscribers.

SingTel's Australian unit Optus added 76,000 users during the quarter for a total of 6.68 million customers. The Sydney- based unit had 6.3 million users a year earlier. In Singapore, the company added 66,000 users in the third quarter, bringing its total to 1.76 million.

The number of 3G subscribers reached 367,000. This was a strong increase of more than six times from a year ago and 42 per cent from a quarter ago. The increased affordability of 3G handsets and aggressive handset subsidies offered during the year-end festive promotion period contributed to the strong growth in the quarter.

Singapore had 4.63 million mobile users at the end of December, exceeding the city-state's population, according to the telecommunications regulator Infocomm Development Authority. There were 874,000 high-speed mobile users at the end of December. More details of the market and financial performance of the seven mobile operations will be available when SingTel announces its third-quarter earnings tomorrow

BT, Published January 31, 2007

Optus to pump A$800m in 3G plan

(MELBOURNE) Australia's second-largest phone company, Optus, said yesterday it will spend up to A$800 million (S$952 million) to expand its 3G mobile network to compete with dominant telco Telstra Corp Ltd outside major cities.

The expanded system would be able to reach 96 per cent of Australia's over 20 million people, Optus chief executive officer Paul O'Sullivan told a briefing. Construction on the first phase of the build-out will begin in April with coverage likely to start later this year or early in 2008.

He said the expansion will help to level the playing field with Telstra, which he said had an 'unnaturally high' market share outside of major cities.

Optus, which is owned by Singapore Telecommunications Ltd (SingTel), has a 33 per cent share of the national market in Australia's main cities.

'It's a significant move and a worthwhile one,' said Intersuisse research manager Peter Russell.

'In Asia, SingTel has been building its mobile activities very strongly, and it's doing a great deal across several countries. I think this is part of that drive.'

The cost of the expansion will depend on the technology used, Optus said, adding trials of the new 900 MHz frequency were 'encouraging'.

'The cost of the network rollout is estimated at up to A$800 million if it is built entirely at 2100 MHz, and around A$500 million if 900 MHz proved feasible,' Mr O'Sullivan said.

It would decide on the frequency to be used later this year. 2100 MHz is the global standard for 3G and is used in the vast majority of networks. Handsets in Australia do not work with the newer 900 MHz technology, but handsets will become available later this year or in early 2008.

Mr O'Sullivan said the expansion will be funded out of Optus's normal annual capex programme over the three-year build-out. The project will let Optus make fresh inroads into Telstra's monopoly in rural and regional Australia.

He said the expansion will not affect the company's existing 3G network joint venture with Vodafone in metropolitan areas. - Reuters

BT, Published January 24, 2007

SingTel sells cable firm stake for US$55m

Sale to Bharti gives latter full control of India-S'pore link

SINGAPORE Telecommunications will sell an undersea cable stake to partner and associate Bharti Airtel for US$55 million as it optimises its network infrastructure assets. SingTel said in a statement yesterday that it has agreed to sell its 49.99 per cent stake in Network i2i to Bharti Airtel for about US$55 million, giving the latter 100 per cent control of the cable network. SingTel is set to make an announcement later on the financial impact of the sale to its bottom line. Network i2i owns the undersea cable network between India and Singapore.

With the sale, SingTel, which owns a 30.5 per cent stake in Bharti, will still have indirect ownership of the undersea cable network. SingTel spokesman Peter Heng said: 'With the proposed divestment, SingTel will continue to have capacity on the i2i cable to serve our customers.'

The giant telco also owns another submarine cable network through its US$40 million investment in Sea-Me-We 4, or the South-east Asia-Middle East-Western Europe 4 fibre-optic cable network. Sea-Me-We 4 links 14 countries in Asia, Europe and and the Middle East and was built to meet strong demand for Internet and data services from markets in Asia and Middle East, as well as enhancing communication links between these markets and Europe and the United States. The US$500 million Sea-Me-We 4 cable network, the fourth in a series of cable connecting Asia, Europe and North Africa and completed last year, was built by a consortium of 16 telco players. Spanning some 20,000 kilometres, it is capable of carrying telephone, Internet and various broadband data streams, besides offering ultra-fast connectivity for the rapidly growing international telecommunications traffic, according to SingTel's 05/06 annual report.

This is not the first time SingTel has sold off its cable assets. Early last year, SingTel sold its troubled 60 per cent subsidiary C2C, which built a US$2 billion pan-Asian submarine cable network in 2001. C2C, which went into receivership in 2005, was SingTel's biggest cable project. Commissioned in January 2002, the C2C network was designed to carry 7.68 terabits per second or 90 million tele-conversations simultaneously. The investment in the network, which links seven countries in the Asia-Pacific region, went awry with the dotcom bust as plunging bandwidth prices and slower demand made it extremely unlikely that C2C could meet its financial obligations.

Extracts fm DBSVickers report dated 13-Dec-06,

Tougher competition in domestic market

Increased contribution from associates but no long-term catalysts for Optus. Bharti is expected to register 60% growth this year against our expectations of 50% growth earlier. Similarly Telkomsel is expected to register about 35% growth for the current year mainly on account of huge growth in subscriber numbers. Overall, regional associates are expected to contribute 45% of the total group earnings for the current year and about 54% of our valuation. On the other hand, there is no significant improvement in the prospects for Optus. Although there may be short-term relief in Optus performance as indicated by management, it lacks long-term catalysts.

Competition in domestic market heating up. This year saw the emergence of three new players in the broadband sector – M1, QMax communications and iCell networks. The sector was a duopoly between SingTel and StarHub till now. Furthermore, free wireless access through Wireless@sg is forcing the operators to launch higher speeds so that consumers are willing to pay for the service. As a result broadband ARPU should go down a bit (up to 5% in our estimate) with higher capex spending on speed upgradation. Again IPTV business may not be profitable on its own for at least next 3-4 years. Even PCCW in Hong Kong - one of the most successful IPTV operators in the world - has struggled to be profitable even four years after launching IPTV. On top of that, SingTel is in a disadvantageous position in the Singapore market due to StarHub holding the exclusive rights for popular content.

Temasek may reduce its stake in SingTel. We are revising one-year target price to S$3.35 (previously S$3.17) to account for higher contribution from regional associates. The key risks to our target price are (1) Possibility of Temasek Holdings reducing its stake (56%) in SingTel (2) 11% drop in Bharti’s stock price (Bharti accounts for 27% of SingTel’s SOTP valuation) over the last two days may be another short-term dampener. (3) Uncertainty over the launch of Next Generation National Broadband (NBN) project to be awarded by IDA in 2007. NBN may bring more players in the broadband sector in order to increase broadband penetration.

Extracts fm CIMB report dated 24-Nov-06,

Loses bid for EPL rights

SingTel has lost its bid to broadcast the Barclays English Premier League (EPL) for the 2008-10 seasons to StarHub. The EPL rights will give StarHub exclusive broadcast rights to as many as 380 EPL matches on all three of its platforms – cable TV, mobile and online. It was not revealed how much the rights will cost StarHub.

Comments

A setback for SingTel, positive for StarHub. This is negative for SingTel in its bid to launch pay television using Internet protocol television (IPTV) as the EPL is probably the most compelling sports programme for Singaporeans. This increases the challenge for SingTel to enter the pay TV market. We understand that StarHub has already ring-fenced most of the key content such as learning/documentaries and movies via exclusive contracts of 3-5 years.

More importantly, it increases the challenge for SingTel to launch a quadruple-play to match that of StarHub. Nonetheless, we still think SingTel will launch pay TV, albeit later when it has secured enough content to launch a credible offering. We think StarHub will raise prices of the sports package to recoup the higher costs of the rights, but is unlikely to experience significant churns due to the relatively inelastic demand for EPL and the positive consumer sentiment in Singapore. Its ability to bundle remains intact.

Valuation and recommendation

Maintaining NEUTRAL rating, with a CY07 target price of S$3.10. The above news is a setback for SingTel. At our target, upside is in line with our estimated upside for the market. Our target is based on rounding down our sum-of-the-parts valuation of S$3.14. We believe SingTel’s ability to outperform will be capped by the lack of catalysts as well as competition in Australia. Also, SingTel is trading at the upper-end of its 12-month forward P/E range of 10-13x.

Extracts fm DBSVickers dated 9-Nov-06,

Beat expectations

Strong earnings growth. Group revenue grew 3% q-o-q but fell 0.7% yo-y to S$3.28bn. Topline was impacted by a falling A$:S$ exchange rate, but excluding the effect, Optus’ revenue grew 5.8% y-o-y to A$1.87bn. Group net underlying profit rose 19% to S$899m, while associates earnings grew 48% y-o-y to S$395m, contributing to 44% of total income.

Australian market remains hostile but margins should be stable. While Optus registered better EBITDA margins than its competitors in Australia such as Vodafone and Hutch, it remains low at 26% due to capped plan migration, decline in fixed line margins and impact of acquisitions. SingTel is keeping its guidance for Optus EBIDTA margins to remain above 26% for FY07, so we do not expect margins to contract further. On the other hand, domestic business showed significant improvement, with operational EBIDTA margin rising 3 percentage points y-o-y to 48.7%. Overall, operational EBIDTA from SingTel and Optus (excluding associate income) fell 0.7pp y-o-y to 33.3%, as lower EBITDA margins in Australia more than offset improved margins in Singapore.

Increased contribution from associates. We raised our FY07 earnings forecast by 5% to reflect our expectations of better results. In our SOTP valuation, regional associates account for 45% of valuation now, up from 38% earlier to reflect their increased contribution. The revised target price of S$3.17 translates to 13.7x FY07 PE and dividend yield of 3.6%, assuming 50% payout. The company also announced its plan to obtain a commercial license for IPTV from MDA and has bid for TV rights for the English Premier League 2007-09 matches, with an eye on providing triple play services to its customers.

Extracts fm CitiGroup report dated 8-Nov-06,

Buy: Interim Dividends! More Lustre to Sound 2Q Results

 Solid trends — Maiden interim DPS of 4.6cents/ share (1.6% yield), semi annual dividend policy hereon; 2Q numbers exceeded estimates, reaffirmation of guidance should ease market concerns on Optus; mature Singapore showing small growth signs (wireless, IPTV). Associates power on (PT Telkom and Bharti are our top picks).

 2Q numbers – a first look — Recurring profits at S$881m (+9%qoq, +16%yoy, CIR Est. – S$825m); operating EBITDA at S$1090m (+4.8%qoq;-3.2yoy; CIR Est. – S$1045m). Associate contributions up strongly to S$510m (+37% yoy, CIR Est. at S$458m), driven mainly by Telkomsel and Bharti.

 Operating trends — (1) Optus EBITDA (A$485m;26% margin; +1.5%qoq/-3.4% yoy) in line with estimates (2) Singapore EBITDA up 8%qoq/6%yoy on top line growth and higher margins (3) Optus Mobile EBITDA margins improve 130 bps QoQ (36.3% in 2Q) though down 130 bps yoy. (4) Mobile and data revenues back to growth; (5) Announce bid for EPL rights to offer Pay HDTV in Singapore.

 We are buyers — Our “best single-stop shop” to Asian telcos thesis is unchanged. We think SingTel offers a mix of mature cash flows from Singapore and Australia, and exciting growth prospects from the best-in-class wireless stable in Asia. Management's shareholder value focus brings further comfort.

SingTel bids for broadcast rights to EPL

Singapore, 7 November 2006 -- Singapore Telecommunications Ltd (SingTel) today
announced that it has submitted a bid for the broadcast rights to the English Premier
League matches (from August 2007 to May 2010). Our intention is to offer Pay TV services to deliver High Definition content over SingTel’s telecommunications network.
SingTel has been given a trial licence by Media Development Authority (MDA) to test the new service. We will be starting a technical trial using High Definition format with content from partners such as MediaCorp Studios and MegaMedia from November 2006.
We are also working with other content partners to provide entertainment services. SingTel has applied to MDA for a commercial Pay TV licence, which will
complement our existing commercial Video-On-Demand licence.

Extracts fm Merrill Lynch report dated 3-Nov-06,

Eyes on Optus

Associates to offset Sing / Aust declines
SingTel reports its 2Q07 result on Wednesday 8th November. We are forecasting pre-exceptional NPAT growth of 2% driven by 29% growth in contribution from Associates which more than offsets an expected -8% decline in consolidated (Singapore domestic and Optus) EBITDA.

Unusual items – property sale & buyback
SingTel has completed its $2.3bn capital reduction during the quarter. We understand that c.835m shares were cancelled on 4th September with SingTel paying the cash to shareholders on 22nd September. SingTel also completed the sale of a property on 31st July for $33m (profit on sale of S$31m). While a similar property sale in FY06 was not included as an extraordinary item we understand that this property sale will be included as an EO in 2Q07.

Optus margin squeeze to continue
We expect Optus to report a 2Q07 EBITDA decline of -5.4% in A$ (-12% in S$). We forecast an EBITDA margin of 26.3%, which is below SingTel’s FY07 guidance statement (at least 26%). The mobile business will again be hit by a 17% reduction in mobile termination rates (18¢/min to 15¢/min) and continued penetration of the customer base by capped plans. Fixed line will be squeezed too. Indeed, it is very possible that SingTel downgrades its FY07 Optus guidance.

Extracts fm Goldman Sachs report dated 27-Oct-06,

Optus is a key concern, but capital management may be a driver

What's changed
We have fine-tuned our SingTel earnings model by incorporating more conservative earnings assumptions for Optus. This is on the back of recent news flow, which suggests a more challenging operating environment in the Australian mobile industry, particularly in the 3G market over the next 12 months. The lower Optus earnings are partly offset by our more optimistic Singapore business outlook following new marketing initiatives in the broadband and pre-paid mobile businesses. These resulted in a 3% increase in FY2007E earnings (including exceptional items), but for FY2008E and FY2009E we have cut earnings by 1% and 5% (due largely to a decline in Optus’ profit contributions). The lower earnings forecasts (FY2008E and beyond) have resulted in a 6% decline in our 12-month DCFdriven price target to S$2.90 (potential 12% upside) from S$3.10.

Implications
We maintain a Buy rating on SingTel as we believe the stock remains one of the most attractively valued large capitalization telecom stocks in the region. There is a risk the company may lower its Optus profit margin guidance at the November 8 2Q results announcement; in our view, any negative knee-jerk reaction represents a buying opportunity ahead of potentially stronger results in 2HFY07 and news flow on potential capital management initiatives early next year.

Valuation
SingTel trades on a calendarized 2007E P/E of 13X compared with 15X for the broader Singapore market (MSCI). While SingTel appears to be trading at the higher end of its regional peer group’s multiples (11X-13X), this could be justified by its strong corporate governance, exposure to the growing emerging market assets, and an attractive dividend policy.

Key risks
Key risks are irrational competition and potential share overhang.

BT, Published October 23, 2006

SingTel sells Robinson Rd site for $163m

SINGAPORE Telecommunications has sold its Robinson Road building, formerly known as Crosby House, for $163.4 million in cash to a joint venture between Lehman Brothers and the Asian arm of Japan's Kajima Corp. SingTel said it expects a net gain of $143.5 million from the sale of the seven-storey block at No 71, which has a net book value of about $19.7 million. This week SingTel will receive $16.3 million or 10 per cent of the purchase price. The remaining 90 per cent will be paid on completion of the sale, which is expected to be in December. The offer by Kajima Overseas Asia Pte Ltd - Kajima Corp's Asia (ex-Japan) arm - and Lehman Brothers is more than double the $69 million price tag placed on the site for commercial development by independent valuer Chesterton International in July.

The 1950s property, which sits on a 2,279 square metre piece of land at the junction of Robinson Road and McCallum Street, is one of the last underdeveloped sites on the prime financial district street. The site could be redeveloped to house a 35-storey office building or a 52-floor apartment block.

SingTel put it up for sale in August, appointing Credo Real Estate which had handled the sale of SingTel's Old Holland Road and West Coast Road sites to market the property via a public tender. The tender sale was launched on Aug 24 and closed on Sept 28.

SingTel said the property is not required for its business and that its sale will not affect the company's other operations. Deputy group chief executive Chua Sock Koong said: 'This sale will allow us to free up cash resources and redeploy them in our core telecommunication business and new investments.'

Kajima Overseas Asia has about $1 billion of property investments in Singapore through stakes in the Millenia Singapore development and The Regent Singapore hotel. In August, Kajima secured its first residential development site here through the en bloc sale of Balmoral View.

Extracts fm CIMB Report dated 22-Sep-06,

Promotes CFO to CEO

SingTel has appointed its group CFO, Ms Chua Sock Koong, as the new group CEO. SingTel's current CEO, Lee Hsian Yang, announced his resignation exactly two months ago, on 21 Jul 06. Ms Chua is also the CEO of the International Division, which spearheads strategic investments overseas and handles overseas associates.

Comments

We are neutral on the news as we are not entirely surprised. We had believed she was a front-runner for the post, given her extensive experience within the group. What surprised us was the speed of the appointment. We had expected the search, a global one, to be longer.

We believe that with an internal promotion, SingTel will likely maintain its strategy of investing in Asia. This is likely to disappoint the market. An external hire with global experience might have led to changes in investment strategy, which we think SingTel needs. Bloomberg reported that Chua expects to make “sensible investments'' overseas, including developing markets, building on Lee's strategy.

We feel that SingTel needs to review its strategy of investing in Asian cellcos, given the dwindling number of large, high-growth cellcos that can be acquired. Similarly, we think SingTel should diversify into areas of multimedia convergence such as internet protocol television (IPTV).

Developments in Thailand on AIS

Separately, we believe the coup in Thailand is unlikely to have any significant impact on AIS’s fundamentals. We also do not think SingTel will be forced to sell down its 21.4% stake in AIS if Shin Corp (a 43% shareholder of AIS) is judged a foreign entity. Note that Shin is 96% owned by Temasek, a Singapore government investment holding company.

We believe Temasek may have to pare down its stake in Shin to comply with Thailand’s 49% foreign shareholding limit. The worst-case scenario is that the government may revoke AIS’s concession if Shin does not comply with its foreign shareholding limits, but we think the risk is extremely remote as it would affect 15.9m consumers. A likely solution is a forced shareholding restructuring at the Shin Corp level.

Valuation and recommendation

Maintain TRADING BUY, with a sum-of-the-parts target price of S$2.77. Given the continued stiff competition in Australia and the dearth of significant investment opportunities in Asia, there does not appear to be any imminent catalysts. Hence, we are reviewing our recommendation for a possible downgrade to neutral.

SingTel shares fall 0.8% following recent Merrill Lynch report

Shares of SingTel gave up 0.8 percent to close at $2.47 on Monday.

This followed a report from Merrill Lynch last Friday which said the telecoms operator could be facing a massive writedown on its Australian unit Optus. Optus is an important part of SingTel's regional operations. It was the acquisition of the Australian unit which turned SingTel into a key regional player - a position subsequently strengthened by other deals in the region.

But while SingTel is seeing strong growth in its mobile units in Indonesia and India, Optus has been struggling amid fierce competition in the Australian market. Optus booked a 7 percent drop in operating profit for the fiscal first quarter - the three months ended in June.

Right now, it is worth more than S$18 billion in SingTel's books, but Merrill warns that this valuation may not be supported unless there is a significant improvement in earnings at Optus by 2009. It says SingTel may have to take a writedown of S$5 billion to S$8 billion on the Australian unit.

Merrill even went so far as to suggest that if the numbers did not pick up, SingTel could either shrink its Australian operations or sell Optus altogether.

Merrill also said that it is expecting to see growing competition in the Singapore mobile market. This is because of the government's push for greater broadband access in Singapore, and the move to allow subscribers to take their phone numbers with them when they switch operators.

Merrill Lynch is keeping to its "Sell" call on SingTel - with a price target of S$2.48. - CNA/ms