What is the news?

SingTel  reported  2Q14  underlying  profits  of  S$884  million. Revenue decreased  -8.9%  y-y,  due to lower revenue from Australia  on  depreciation  of  AUD  against  SGD.  Despite lower  revenue,  EBITDA  from  Optus  increased  3.2%  as  a result  of  lower  expense  and  write-back  provision  for  base station rentals of A$22 million.  Share of associates’ pre-tax profits  fell  9.6%  due  to  adverse  currency  movements. Excluding  currency  translation  and  fair  value  losses,  the associates’ pre-tax earnings would have increase 5%.

How do we view

The  decline  in  revenue  was  mitigated  by  effective  cost management. On the  SG  Group Consumer, strong gain  in mobile revenue was reported with increasing take-ups in the new  tiered  data  plans  while  pay  TV  revenue  increased  on higher  customer  base.  On  the  Australia  Consumer business,  we  continue  to  see  improvement  on  EBITDA margin. Group Enterprise revenue was lower  mainly due to weaker business environment  and weaker Australian dollar, but EBITDA was up 1.2% y-y on better cost management.

Investment Actions?

We factor in 2Q14’s earnings. We derive a new Sum-of-theparts  (SOTP)  target  price  of  S$4.06.  SingTel’s  dividend yield  remains  attractive,  while  the  business  remains fundamentally  strong,  and  the  associates  provide  growth potential. We therefore maintain our “Accumulate” rating.

Source: PhillipCapital Research - 15 Nov 2013