Singtel reported 1HFY13 consolidated revenue and net profit of SGD9.10bn and SGD1.81bn respectively. The group's EBITDA came in at SGD2.51bn (2QFY13: SGD1.27bn) while the share of associate contributions (before exceptional items) totaled SGD1.08bn (2QFY13: SGD574m). Management has proposed an interim dividend of 6.8 cents/share, consistent with its earlier guidance for a 55%-70% payout.

Below expectations. Singtel's core earnings of SGD1.74bn were 8%-9% below our and consensus estimates when annualized. The key highlights were: (i) the y-o-y revenue contraction for Optus, and (ii) pressure on overall EBITDA.

SGD strength continues to be a challenge. The group's consolidated revenue declined 1.2% y-o-y in 1HFY13 (+0.9% q-o-q), dragged by the continued strength of the SGD versus the AUD (+4% YTD). This contributed to the weaker translated revenue from Optus (63% of revenue). Group EBITDA, meanwhile, narrowed by 0.9% in 1HFY13 albeit improving by 2% q-o-q, mainly driven by lower subscriber acquisition cost (SAC) at Optus while Sing EBITDA slipped 1% q-o-q. The contribution from associates increased 8% y-o-y (+12.8% q-o-q) despite a 3%-5% weakness in the Indian Rupee (INR), Indonesian Rupiah (IND) and Thai Baht (THB).

Sing EBITDA to remain under pressure. Sing revenue came in relatively flat q-o-q versus the 2.5% contraction in the preceding quarter, during which there was seasonally lower billings from the IT and engineering (ITE) arm. Revenue growth has, nonetheless, decelerated as fiber revenue peaked in 1QFY13. The telco business, which reported flattish revenue on stable postpaid ARPU, added 24k postpaid subs in 2QFY13 versus 45k in the preceding quarter.

How Optus fared. Optus' revenue fell 3.7% y-o-y in 1HFY13, reflecting the lower mandated mobile termination rates implemented earlier this year, as well as weaker handset sales, albeit this was flat q-o-q. The EBITDA increase of 2.7% reflects lower SAC, which translated into an EBITDA margin of 25% versus 24.4% in 1QFY13.

Telkomsel and AIS the bright spots. Telkomsel's performance was boosted by the Lebaran season and stronger SMS interconnect revenue which came into effect in June, while AIS saw good data traction and subscriber growth. Singtel ceased equity accounting of Warid Telecom from 1 July.

Lowering guidance. Singtel has moderated its previous FY13 guidance for Optus, which is not surprising given that the telco's revenue contracted in 1HFY13 in tandem with the overall weakness in the industry. It is now guiding for a 'mid-single digit decline' in Optus' revenue from 'low single-digit growth' previously, while retaining its stable EBITDA outlook. Management has reaffirmed the guidance for Sing revenue to growth in the 'low single digit' and stable EBITDA. We are likely to tweak our forecast downwards post the conference call with management today. Singtel remains a NEUTRAL as the stock lacks re-rating catalysts. The competitive headwinds in Australia and Singapore are expected to weigh on group margins. Starhub remains our preferred exposure to the Singapore telco sector.

Source: OSK