What is the news?

SingTel reported 4Q13 underlying profits of S$1,001 million. FY13 guidance was met, while Free cash flow was strong, partly due to capital expenditure in Singapore being below guidance. (S$731m instead of S$950m). SingTel’s various segments continue to perform adequately. Guidance for FY14 was also provided. In brief, Group revenue is expected to be stable, Group EBITDA to grow at low single digit, and Group EBIT (ex-assoc contribution) to be stable.

How do we view

In broad, FY14 guidance points to limited growth in Singapore and Australia. Growth potential is expected to be from improved performance in SingTel’s associates, namely AIS and Telkomsel, and a turnaround, better performance from Airtel. FY14 guidance also points to higher capital expenditure of S$2.5B, and S$700M per year allocated for investments in the Group Digital. While dividends are expected to be stable at current levels, special dividends may be less likely. We however believe that investors will benefit once the Digital initiatives and additional capex have been incurred in improving the quality of service.

Investment Actions?

We factor in 4Q13’s earnings. We derive a new Sum-of-theparts (SOTP) target price of S$4.07. While near-term capital appreciation is limited, we think the dividend yield attractive, while SingTel’s associates provide growth potential. We therefore upgrade our rating to “Accumulate”.

Source: PhillipCapital Research - 16 May 2013