1QFY14 results within expectations. Underlying net profit fell 10% QoQ to SGD897m but rose 5.5% YoY. There was an exceptional gain of SGD114m from Bharti’s issue of 5% new shares to Qatar Foundation but this is not included in underlying numbers. Generally, it was a strong set of results with group EBITDA profits up 4.3% and EBITDA margin up 2.8% points to 30.2%, driven by the Singapore consumer business (EBITDA +20%) and a 5% rise in Australia EBITDA despite lower revenue.

2QFY14 margins would be lower. The strong margins in 1Q were definitely helped by lower mobile subscriber acquisition costs in both Singapore and Australia given that nobody launched premium handsets except HTC. However, we do not expect it to last in the rest of the year as Apple is expected to release its new iPhone in Sep/Oct and the other players are bound to follow up with new models. BPL-related content costs and A$ weakness will also crimp margins. The new BPL season starts in Aug and SingTel will start to amortise its cost in 2QFY14.

Guidance revised down. A change in reporting format makes it a bit difficult to forecast but SingTel has generally revised its guidance down. Significantly, group revenue is now expected to fall by mid single digits (previously stable) while EBITDA is expected to fall by low single digits (previously grow by low single digits). According to management, this revision is solely due to the A$ weakness, which has fallen by 10% since the beginning of May, and may be revised up again if the currency reverses direction.

Maintain HOLD, no catalysts. In the absence of strong catalysts either way, we remain Neutral on SingTel, with a DCF-derived target price of SGD3.60. Business conditions are fair to stable with the exception of currency volatility, which is a perennial bugbear for SingTel given that more than half of its profits come from foreign markets. We have changed our valuation methodology to DCF to account for this potential volatility.

Source: Maybank Kim Eng Research - 15 Aug 2013