THE BUZZ

Singtel reported a 2% y-o-y decline in 9MFY13 core profit to SGD2.61bn on the back of a 2.4% contraction in revenue to SGD13.7bn. Core earnings for the quarter narrowed 1.2% sequentially (-2.3% y-o-y) to SGD874m. The share of associate contributions fell 15.3% qo- q (+2.2% y-o-y) to SGD486m in 3QFY13, albeit up 6% y-t-d to SGD1.57bn. The group’s overall results continued to reflect weaknesses across key regional currencies, in particular the AUD, INR and IDR, which depreciated 3%-13% y-o-y (-2-3% q-o-q) vs. the SGD.

OUR TAKE

In line with street but missed our expectations. At 70% of our and 71% of consensus estimates, Singtel’s 9MFY13 results narrowly missed our expectations albeit in line with street estimates. The key takeaways from the results were: (i) extended losses at its new digital life business which had diluted overall group margin, (ii) higher Sing and Optus’ revenues marked by seasonality, and (ii) weaker regional currencies, specifically the AUD, IDR and INR which impacted revenue and profits when translated.

Optus holding steady on EBITDA. Optus’ revenue improved 2% q-o-q after three consecutive quarters of contraction or flat growth, but down 4% y-o-y in 9MFY13, reflecting the lower mobile termination rate implemented in January 2012. The restructuring of its business and unrelenting focus on cost and yield management contributed to the 3% q-o-q and y-o-y growth in EBITDA, which translates into slightly stronger EBITDA margin of 25.2% during the quarter.

Margins continued to be dampened by start-up businesses. Singtel’s EBITDA fell 2% q-o-q (+1.4% y-o-y) in 3QFY13, reflecting the start-up losses at Amobee which contributed SGD21m in revenue for the quarter and SGD49m in 9MFY13. Mobile revenue improved 4% q-o-q (2QFY13: +2% q-o-q), supported by seasonally higher roaming revenue, increased handset sales and stronger subs net-addition. Singtel added 64k mobile subs during the quarter and signed-up a further 8k mio-TV customers with total pay-tv subs crossing the 400k mark in January, as it continued to chip away Starhub’s dominance in the pay-tv segment via increased channel offerings.

Bright spots in Indonesia and Thailand. The stronger showing from Telkomsel and AIS offset Bharti’s weaker numbers. Overall contributions from associates were negatively impacted by the steep depreciation of the respective currencies.

Guidance reaffirmed - forecast and FV under review. Management has maintained its prior guidance of (i) consolidated revenue to decline by low single digit (ii) Sing revenue to grow at low single digit (iii) low single digit decline for Optus’ revenue (which was downgraded post 2QFY13 results) and (iii) stable EBITDA for both Sing and Optus operations. Our forecasts and fair value are under review pending the results conference call with management later today. We are likely to fine-tune our forecast but keep our NEUTRAL recommendation on the stock.

Source: OSK Research - 14 Feb 2013