13 April 2011 Nomura 1 Any authors named on this report are research analysts unless otherwise indicated. See the important disclosures and analyst certifications on pages 13 to 18. Singapore Telecom ST SP TELECOMS | SINGAPORE Sachin Gupta, CFA +65 6433 6968 [email protected]Neeraja Natarajan (Associate) Third time lucky on specials Will it return a large chunk of cash to investors in May? We expected some capital management in May last year – and there was none; we again called for some capital management in Nov last year – and management raised the payout ratio to 55-70%. Now, for the third time, we think SingTel will either increase the payout further, or undertake some form of capital management. For 9M FY11, it generated S$2.9bn in free-cash flows. Every S$1bn in capital return implies an additional 2% dividend yield, on our estimates. Solid valuation – but not dirt cheap SingTel is a solid diversified company, but its earnings outlook has moderated to low single-digit growth. Valuation is a key appeal and it’s now trading at 12.7x FY12F P/E, or 11.6x for Singapore and Optus combined (which are now generating a FCF yield of 7.8%). This is around a 10% discount to regional peers – compelling but not dirt cheap, in our view. We have made modest adjustment to our forecasts and also incorporated recently revised estimates for Bharti and Telkomsel. Our revised PT is S$3.42. Market-specific issues – are they priced in? There is uncertainty in most of its key markets. Singapore could get more aggressive in 2H as NBN gains traction and content cross- carriage measures are rolled out, but we don't expect SingTel to lose significant share or margins. In 9M11, its Singapore margins were 35.9% and for FY12F we expect these to be 33.7%. In Australia, Telstra’s aggressive push for subscribers is a risk – we assume no EBITDA growth for Optus next year. Our recent trip to India confirmed broader stability in wireless prices; however recent regulatory overhangs remain a concern. We expect NTP-11 by 2H11. Telkomsel’s 2H10 trends showed some recovery, and we anticipate further resilience for the next few quarters. Key financials & valuations 30 Mar (S$mn) FY10 FY11F FY12F FY13F Revenue 16,966 18,160 18,718 19,145 Reported net profit 3,907 3,730 3,778 3,915 Normalised net profit 3,915 3,730 3,778 3,915 Normalised EPS (S$) 0.25 0.23 0.24 0.25 Norm. EPS growth (%) 9.8 (4.7) 1.3 3.6 Norm. P/E (x) 12.3 12.9 12.7 12.3 EV/EBITDA (x) 7.3 7.3 7.0 6.6 Price/book (x) 2.0 2.0 1.9 1.9 Dividend yield (%) 4.7 5.0 5.6 5.6 ROE (%) 17.8 15.8 15.5 15.5 Net debt/equity (%) 22.3 19.5 17.7 16.5 Earnings revisions Previous norm. net profit 3,739 3,797 3,966 Change from previous (%) (0.2) (0.5) (1.3) Previous norm. EPS (S$) 0.23 0.24 0.25 Source: Company, Nomura estimates Share price relative to MSCISG 1m 3m 6m 1.7 (2.6) (2.3) 3.1 0.2 1.7 (2.1) 0.8 (3.2) Easy Source: Company, Nomura estimates 38,241 45.8 3.32/2.76 45.86 Absolute (S$) Absolute (US$) Relative to Index Estimated free float (%) Market cap (US$mn) 4.9 Major shareholders (%) Temasek 54.1 52-week range (S$) 3-mth avg daily turnover (US$mn) Capital Group Stock borrowability 2.7 2.8 2.9 3.0 3.1 3.2 3.3 3.4 Apr10 May10 Jun10 Jul10 Aug10 Sep10 Oct10 Nov10 Dec10 Jan11 Feb11 Mar11 80 85 90 95 100 105 Price Rel MSCISG (S$) Closing price on 12 Apr S$3.01 Price target S$3.42 (from S$3.35) Upside/downside 13.6% Difference from consensus 0.9% FY12F net profit (S$mn) 3,778 Difference from consensus -7.9% Source: Nomura Nomura vs consensus Our higher price target reflects a relatively better operating environment for wholly owned businesses. Maintained NEUTRAL NOMURA SINGAPORE LIMITED Action SingTel shares should trade up into the full-year result in May. Operating trends and guidance should be resilient and currently, its Singapore/Optus stub is trading at FY12F P/E of 11.6x, at a discount to regional peers. Also, unlike the past two years, we don't see many other options for cash deployment, so a large capital management is likely (we hope!). There are no acquisitions on the horizon, its associates are all self-funded, and capex risks are benign in Singapore and Australia. Every S$1bn adds 2% to yield; but to make it compelling relative to peers, up to S$2bn return is desired, which could make it a 9%-yielding stock. Catalysts Operational trends in key markets and capital management are potential catalysts. Anchor themes Volatility, due to rising competition in regional markets, could persist, but SingTel’s associates have strong market positions, balance sheets and earnings outlooks. This document is being provided for the exclusive use of FASILAH OMAR at SCHRODER INVESTMENT MGMT(S) LTD
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13 April 2011 Nomura 1
Any authors named on this report are research analysts unless otherwise indicated. See the important disclosures and analyst certifications on pages 13 to 18.
Third time lucky on specials Will it return a large chunk of cash to investors in May?
We expected some capital management in May last year – and there was none; we again called for some capital management in Nov last year – and management raised the payout ratio to 55-70%. Now, for the third time, we think SingTel will either increase the payout further, or undertake some form of capital management. For 9M FY11, it generated S$2.9bn in free-cash flows. Every S$1bn in capital return implies an additional 2% dividend yield, on our estimates.
Solid valuation – but not dirt cheap
SingTel is a solid diversified company, but its earnings outlook has moderated to low single-digit growth. Valuation is a key appeal and it’s now trading at 12.7x FY12F P/E, or 11.6x for Singapore and Optus combined (which are now generating a FCF yield of 7.8%). This is around a 10% discount to regional peers – compelling but not dirt cheap, in our view. We have made modest adjustment to our forecasts and also incorporated recently revised estimates for Bharti and Telkomsel. Our revised PT is S$3.42.
Market-specific issues – are they priced in?
There is uncertainty in most of its key markets. Singapore could get more aggressive in 2H as NBN gains traction and content cross-carriage measures are rolled out, but we don't expect SingTel to lose significant share or margins. In 9M11, its Singapore margins were 35.9% and for FY12F we expect these to be 33.7%. In Australia, Telstra’s aggressive push for subscribers is a risk – we assume no EBITDA growth for Optus next year. Our recent trip to India confirmed broader stability in wireless prices; however recent regulatory overhangs remain a concern. We expect NTP-11 by 2H11. Telkomsel’s 2H10 trends showed some recovery, and we anticipate further resilience for the next few quarters.
Key financials & valuations30 Mar (S$mn) FY10 FY11F FY12F FY13F
Revenue 16,966 18,160 18,718 19,145
Reported net profit 3,907 3,730 3,778 3,915
Normalised net profit 3,915 3,730 3,778 3,915
Normalised EPS (S$) 0.25 0.23 0.24 0.25
Norm. EPS growth (%) 9.8 (4.7) 1.3 3.6
Norm. P/E (x) 12.3 12.9 12.7 12.3
EV/EBITDA (x) 7.3 7.3 7.0 6.6
Price/book (x) 2.0 2.0 1.9 1.9
Dividend yield (%) 4.7 5.0 5.6 5.6
ROE (%) 17.8 15.8 15.5 15.5
Net debt/equity (%) 22.3 19.5 17.7 16.5
Earnings revisions
Previous norm. net profit 3,739 3,797 3,966
Change from previous (%) (0.2) (0.5) (1.3)
Previous norm. EPS (S$) 0.23 0.24 0.25
Source: Company, Nomura estimates
Share price relative to MSCISG
1m 3m 6m
1.7 (2.6) (2.3)
3.1 0.2 1.7
(2.1) 0.8 (3.2)
Easy
Source: Company, Nomura estimates
38,241
45.8
3.32/2.76
45.86
Absolute (S$)
Absolute (US$)
Relative to Index
Estimated free float (%)
Market cap (US$mn)
4.9
Major shareholders (%)
Temasek 54.1
52-week range (S$)
3-mth avg daily turnover (US$mn)
Capital Group
Stock borrowability
2.72.82.93.03.1
3.23.33.4
Ap
r10
Ma
y10
Jun
10
Jul1
0
Aug
10
Se
p10
Oct
10
No
v10
Dec
10
Jan
11
Fe
b1
1
Ma
r11
80
85
90
95
100
105Price Rel MSCISG(S$)
Closing price on 12 Apr S$3.01
Price target S$3.42(from S$3.35)
Upside/downside 13.6%Difference from consensus 0.9%
FY12F net profit (S$mn) 3,778Difference from consensus -7.9%Source: Nomura
Nomura vs consensus Our higher price target reflects a relatively better operating environment for wholly owned businesses.
Maintained
NEUTRAL
N O M U R A S I N G A P O R E L I M I T E D
Action SingTel shares should trade up into the full-year result in May. Operating trends
and guidance should be resilient and currently, its Singapore/Optus stub is trading at FY12F P/E of 11.6x, at a discount to regional peers. Also, unlike the past two years, we don't see many other options for cash deployment, so a large capital management is likely (we hope!). There are no acquisitions on the horizon, its associates are all self-funded, and capex risks are benign in Singapore and Australia. Every S$1bn adds 2% to yield; but to make it compelling relative to peers, up to S$2bn return is desired, which could make it a 9%-yielding stock.
Catalysts Operational trends in key markets and capital management are potential catalysts.
Anchor themes
Volatility, due to rising competition in regional markets, could persist, but SingTel’s associates have strong market positions, balance sheets and earnings outlooks.
This document is being provided for the exclusive use of FASILAH OMAR at SCHRODER INVESTMENT MGMT(S) LTD
Singapore Telecom Sachin Gupta, CFA
13 April 2011 Nomura 2
Drilling down
Implied valuations So far this year, SingTel shares are down1%, PT Telkom down 11%; conversely,
Bharti is up 1%, Globe up 5% and AIS up 2%.
Exhibit 1. SingTel and associates : YTD performances
-1%
-11%
1% 2%
5%
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
Sin
gT
el
PT
Tel
kom
Bh
arti
AIS
Glo
be
Source: Bloomberg, Company data, Nomura research
Following the recent declines in its associate prices, the stub value is now S$1.50, accounting for 50% of the total share price.
Exhibit 2. Singtel price breakdown
0.8
1.1
1.3
1.6
1.8
2.1
2.3
2.6
2.8
3.1
3.3
3.6
3.8
Jan
-09
Feb
-09
Mar
-09
Ap
r-09
May
-09
Jun
-09
Jul-
09
Aug
-09
Sep
-09
Oct
-09
No
v-09
Dec
-09
Jan
-10
Feb
-10
Mar
-10
Ap
r-10
May
-10
Jun
-10
Jul-
10
Aug
-10
Sep
-10
Oct
-10
No
v-10
Dec
-10
Jan
-11
Feb
-11
Mar
-11
Sing+Optus Associates SingTelS$
Source: Bloomberg, Company data, Nomura research
This document is being provided for the exclusive use of FASILAH OMAR at SCHRODER INVESTMENT MGMT(S) LTD
Singapore Telecom Sachin Gupta, CFA
13 April 2011 Nomura 3
SingTel’s one-year forward rolling P/E is now trading marginally below its three-year average of 13x, appealing but not entirely cheap, in our view.
Exhibit 3. Singtel P/E trends
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
16.0x
18.0x
20.0x
Jan
-08
Feb
-08
Mar
-08
Ap
r-08
May
-08
Jun
-08
Jul-
08A
ug-0
8S
e p-0
8O
ct-0
8N
ov-
08D
ec-0
8Ja
n-0
9F
eb-0
9M
ar-0
9A
pr-
09M
a y-0
9Ju
n-0
9Ju
l-09
Au g
-09
Se p
-09
Oct
-09
No
v-09
Dec
-09
Jan
-10
Feb
-10
Mar
-10
Ap
r-10
Ma y
-10
Jun
-10
Jul-
10A
u g-1
0S
ep-1
0O
ct-1
0N
ov-
10D
ec-1
0Ja
n-1
1F
eb-1
1M
ar-1
1
Average 3 year 1Yr forward PE of 13x
Source: Bloomberg, Company data, Nomura research
The one-year forward P/E for Singapore and Optus combined is currently 11.6x, which is at a 10% discount to regional telcos.
Exhibit 4. Singtel + Optus – P/E trends
6.0x
7.0x
8.0x
9.0x
10.0x
11.0x
12.0x
13.0x
14.0x
15.0x
16.0x
Jan
-09
Mar
-09
May
-09
Jul-
09
Sep
-09
No
v-09
Jan
-10
Mar
-10
May
-10
Jul-
10
Sep
-10
No
v-10
Jan
-11
Mar
-11
Singapore + Optus PE
Source: Bloomberg, Company data, Nomura research
This document is being provided for the exclusive use of FASILAH OMAR at SCHRODER INVESTMENT MGMT(S) LTD
Singapore Telecom Sachin Gupta, CFA
13 April 2011 Nomura 4
Strong cash-flows – will cross S$4bn in the next two years
Exhibit 5. SingTel- free cash flows breakdown by business
Singapore – risks/ opportunities ahead Key focus areas in Singapore market are: 1) wireless trends; 2) NBN impact; and 3) content cross carriage measures.
As seen in exhibit 8 below, SingTel has been consistently increasing its wireless revenue and subscriber share without sacrificing margins.
We believe the NBN impact will likely become more transparent in 2H11F, and we currently assume only 3.2% total revenue growth in Singapore in FY12F with 33.7% margins.
On content cross-carriage, SingTel currently has a 33% share of the pay-TV market, but only a 19% revenue share. Even if SingTel were to gain access to StarHub’s 200k customers at S$30 ARPU, it would translate to only S$72mn in additional revenue or 1.2% of its total Singapore revenues, based on our estimates. See our recent report, Content — what is mine is yours? dated 4 March 2011 for further details.
Exhibit 6. Revenue trends
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2009 2010 2011F 2012F 2013F 2014F
S$m
Source: Company reports, Nomura estimates
Exhibit 7. EBITDA and margin trends
28%
29%
30%
31%
32%
33%
34%
35%
36%
37%
38%
39%
-
500
1,000
1,500
2,000
2,500
2009 2010 2011F 2012F 2013F 2014F
S$m EBITDA Margin %
Source: Company reports, Nomura estimates
This document is being provided for the exclusive use of FASILAH OMAR at SCHRODER INVESTMENT MGMT(S) LTD
Singapore Telecom Sachin Gupta, CFA
13 April 2011 Nomura 5
Exhibit 8. Quarterly trends
Jun '09 Sep '09 Dec '09 Mar '10 Jun '10 Sep '10 Dec '10 Mobile revenue market share
StarHub 34.3% 34.1% 33.3% 34.3% 33.8% 33.9% 33.1%
M1 17.8% 17.3% 17.0% 17.2% 16.6% 16.4% 16.1%
SingTel 47.9% 48.5% 49.7% 48.5% 49.6% 49.7% 50.8%
ARPU
StarHub 46 46 47 46 45 46 46
M1 47 46 46 45 44 43 43
SingTel 50 50 51 51 53 53 56
Mobile revenue
StarHub 272 277 281 286 294 298 303
M1 142 141 143 143 145 144 147
SingTel 380 394 419 405 432 437 465
TOTAL 793 812 843 835 871 879 915
Mobile revenue y-y change %
StarHub 1% 5% 3% 8% 8% 8% 6%
M1 -8% -6% -2% 2% 2% 2% 3%
SingTel 10% 11% 12% 9% 14% 11% 11%
TOTAL 3% 5% 7% 8% 10% 8% 9%
Mobile revenue q-q change %
StarHub 3% 2% 1% 2% 3% 1% 1%
M1 1% 0% 2% 0% 1% -1% 2%
SingTel 3% 4% 6% -3% 7% 1% 6%
Subscriber (k)
StarHub 1,849 1,884 1,918 1,975 2,056 2,121 2,145
M1 1,669 1,717 1,758 1,796 1,849 1,892 1,911
SingTel 2,991 3,100 3,181 3,116 3,113 3,167 3,229
Subscriber market share %
StarHub 28% 28% 28% 29% 29% 30% 29%
M1 26% 26% 26% 26% 26% 26% 26%
SingTel 46% 46% 46% 45% 44% 44% 44%
Net - adds (k)
StarHub 34 35 34 57 81 65 24
M1 50 48 41 38 53 43 19
SingTel 15 109 81 (65) (3) 54 62 Source: Company reports, Nomura research
Optus – is Telstra a risk? For more than seven consecutive quarters, Optus has surpassed expectations.
Wireless revenues have grown in excess of 7% for 10 consecutive quarters now. Obviously, with Telstra looking to win back customers at a high cost, we don't envisage these growth trends can be maintained. Nevertheless, we don't envisage a significant loss in market share either. For FY12F, we build in 3% total revenue growth with flat earnings.
This document is being provided for the exclusive use of FASILAH OMAR at SCHRODER INVESTMENT MGMT(S) LTD
Singapore Telecom Sachin Gupta, CFA
13 April 2011 Nomura 6
Exhibit 9. Revenue trends
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
7,500
8,000
8,500
9,000
9,500
10,000
2009 2010 2011F 2012F 2013F 2014F
S$m Revenue Chg % y-y
Source: Company reports, Nomura estimates
Exhibit 10. EBITDA trends
21.5%
22.0%
22.5%
23.0%
23.5%
24.0%
24.5%
25.0%
1,950
2,000
2,050
2,100
2,150
2,200
2,250
2,300
2009 2010 2011F 2012F 2013F 2014F
S$m EBITDA (S$m) Margin %
Source: Company reports, Nomura estimates
Bharti – stable for now Domestic trends appear to be stabilizing over the last couple of quarters with price
declines moderating. On the other hand, stable pricing, if seen in the market (in the medium-term), could help growth surprise on the upside. It is still early days for data and 3G and at this stage, not much is being factored in for these in our view.
Africa is still the unknown for Bharti; however, it is confident that it can keep capex at current levels of $800-900mn p.a. Although management’s target is for 40% margins, even if Bharti reaches around 30% margins by FY13F while maintaining capex at around US$1bn, we believe it can generate US$500mn in free cash, which is a promising outcome, in our opinion. See our report Rumble in the jungle dated 9th February 2011 for further details on Bharti.
Exhibit 11. Africa - EBITDA and margin …
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
Dec
-06
Dec
-07
Dec
-08
Dec
-09
Mar
-11
Mar
-12
Mar
-13
0
5
10
15
20
25
30
35
40 EBITDA (Rs mn) Margin (%) (%)
Note: Mar-11 indicates 12 months ending in March-11
Source: Company reports, Nomura estimates
Exhibit 12. India - EBITDA and margin …
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
2007 2008 2009 2010 2011F 2012F 2013F
0
5
10
15
20
25
30
35
40
45 EBITDA (INR mn) Margin (%) (%)
Source: Company reports, Nomura estimates
This document is being provided for the exclusive use of FASILAH OMAR at SCHRODER INVESTMENT MGMT(S) LTD
Singapore Telecom Sachin Gupta, CFA
13 April 2011 Nomura 7
Exhibit 13. RPM decline stabilising in India
-20%
-15%
-10%
-5%
0%
5%
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11
Bharti RCOM Idea Vodafone
Source: company reports
Telkomsel – winning some share back Last year, XL again outperformed peers, while Indosat was still in a transition
phase and Telkomsel’s performance was mixed. Clearly, some of Telkomsel’s promotions / plans did not yield the expected returns – some of these have been retracted, and the company targets 7-8% wireless growth this year (we are building in 5% at this stage). Growth drivers will be: 1) potential subscriber groups that have not been addressed (~30mn); 2) opportunities offered by the ex Java region, and; 3) broadband services.
Telkomsel lost significant revenue and EBITDA share in 2010 – but on breaking this down further, we note that most of this happened in 1H, while in 2H it returned to a 47% incremental revenue share and a 42% EBITDA share amongst the top-three Indonesian telcos. Within this, its voice share was 44% in 2H (which is a higher-margin business) with a 48% share in data (incl. SMS) on our estimates. It has further expanded its network advantage and added another 5.5k BTSs last year to 37k in total, which is 55% of the total new build in the market. The change in frequency fee structure based on bandwidth also bode well for Telkom, in our view. Overall, we expect the company to maintain / improve its operating momentum in the coming months and, hence, we recently upgraded the stock to BUY. See our report Capturing value, seizing returns, dated 11 April 2011 for more details.
Exhibit 14. PT Telkom : 1 year forward P/E
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
Mar-0
4
Aug-
04
Jan-
05
Jun-
05
Nov-
05
Apr-0
6
Sep-
06
Feb-
07
Jul-0
7
Dec-
07
May-
08
Oct-0
8
Mar-0
9
Aug-
09
Jan-
10
Jun-
10
Nov-
10
Apr-1
1
(Rp)
6x
9x
12x
15x
18x
21x
Source: Company data, Nomura research
Exhibit 15. PT Telkom : 1 year forward EV/ EBITDA
0
50,000
100,000
150,000
200,000
250,000
300,000
Apr-0
4
Oct-0
4
Apr-0
5
Oct-0
5
A pr-0
6
Oct-0
6
A pr-0
7
Oct-0
7
Apr-0
8
Oct-0
8
A pr-0
9
Oct-0
9
A pr-1
0
Oct-1
0
A pr-1
1
(Rp bn)
2x
3x
4x
5x
6x
7x
Source: Company data, Nomura research
This document is being provided for the exclusive use of FASILAH OMAR at SCHRODER INVESTMENT MGMT(S) LTD
Singapore Telecom Sachin Gupta, CFA
13 April 2011 Nomura 8
Exhibit 16. Incremental shares on half-yearly basis (sequential)
2H08 1H09 2H09 1H10 2H10
Incremental revenue
Telkomsel 253 524 2,812 (1,212) 1,231
Indosat 867 (918) 719 354 671
XL 487 (63) 1,285 871 726
Total 1,607 (457) 4,816 13 2,628
% Incremental revenue share
Telkomsel 16% nmf 58% nmf 47%
Indosat 54% nmf 15% nmf 26%
XL 30% nmf 27% nmf 28%
Incremental EBITDA
Telkomsel (886) 1,214 1,727 (1,532) 604
Indosat 493 (572) 104 169 410
XL (78) 41 1,069 793 430
Total (471) 683 2,900 (570) 1,444
% Incremental EBITDA share
Telkomsel nmf nmf 60% nmf 42%
Indosat nmf nmf 4% nmf 28%
XL nmf nmf 37% nmf 30%
Incremental voice revenues
Telkomsel 1,706 (583) 1,582 (759) 411
Indosat 609 (1,208) 251 (239) 180
XL 398 (221) 145 467 343
Total 2,713 (2,011) 1,977 (531) 934
% Incremental voice revenue share
Telkomsel 63% 29% 80% nmf 44%
Indosat 22% 60% 13% nmf 19%
XL 15% 11% 7% nmf 37%
Incremental data revenues
Telkomsel (1,453) 1,107 1,230 (453) 820
Indosat 258 290 468 593 491
XL 90 158 669 404 383
Total (1,106) 1,554 2,368 544 1,694
% Incremental data revenue share
Telkomsel nmf 71% 52% nmf 48%
Indosat nmf 19% 20% nmf 29%
XL nmf 10% 28% nmf 23%
Source: Company data, Nomura research
AIS – cost controls Sequential growth in service revenues in the last quarter was higher than we
expected. While we were surprised by growth in the voice segment, non voice revenues growth was in line with our expectations. For FY10, service revenues grew 7.9% versus AIS’s target of 5%, and its share of industry service revenue rose to 52.9% (up 100 bps y-y).
At the same time, AIS’s control on SG&A expenses in FY10 was better than we expected. SG&A in 4Q10 dropped 1% q-q – the first decline in the past seven years. SG&A expenses as a percentage of total revenues excluding IC were 10.6% in FY10, a third consecutive year of decline from 12.6% in 2007. However, AIS’s management has guided that the current SG&A level is close to the bottom and it sees limited room for further decline in 2011.
This document is being provided for the exclusive use of FASILAH OMAR at SCHRODER INVESTMENT MGMT(S) LTD
Singapore Telecom Sachin Gupta, CFA
13 April 2011 Nomura 9
Exhibit 17. AIS : service revenues trend
0
5
10
15
20
25
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
THBbn
Source: company reports
Globe – rationalising market Globe has seen some success in turning around its market share over the last
couple of quarters, and the impending market consolidation from three to two players could prove beneficial. While there could be some pullback in competitive intensity in the next six months, we still believe the market could struggle to generate material revenue growth as it transitions from voice to data.
For Globe, the bigger concern is of course earnings recovery. In addition to impact from competition, broadband margins have also declined significantly. We continue to believe earnings recovery could therefore still be >12M event.
Earnings revision and valuation mix Following our recent revisions to Bharti and Telkomsel forecasts, and modest changes to our Singapore and Optus numbers, the net impact is a modest +1% to -1% revision to our FY11-13F forecasts. Our revised price target is S$3.42 per share.
Exhibit 18. Earnings revisions
2011F 2012F
New Forecasts
Total Revenue 18,025 18,583
EBITDA (incl. Associates) 7,108 7,390
NPAT pre GW, Excepts & IDA comp 3,730 3,778
Old Forecasts
Total Revenue 17,867 18,423
EBITDA (incl. Associates) 7,141 7,467
NPAT pre GW, Excepts & IDA comp 3,739 3,797
Changes
Total Revenue 0.9% 0.9%
EBITDA (incl. Associates) -0.5% -1.0%
NPAT pre GW, Excepts & IDA comp -0.2% -0.5%
Note: Total revenues here excludes other income
Source: Nomura estimates
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Singapore Telecom Sachin Gupta, CFA
13 April 2011 Nomura 10
Exhibit 19. SoTP breakdown
Asset S$mn cps
Singapore 20,594 1.29
Optus 11,913 0.75
AIS 2,682 0.17
Globe 1,447 0.09
Bharti 14,559 0.91
Telkomsel 7,543 0.47
Warid 0 -
PBTL 0 -
Far Eastone 193 0.01
SingPost 398 0.02
Total 59,328 3.72
Less Net Debt 4,634 0.29
Equity Value 54,694
Shares on Issue 15,970
Equity Value per share S$ 3.42
Source: Company reports, Nomura estimates
Exhibit 20. Regional valuation table Bloomberg Local Mkt Cap
EV/EBITDA (x) Div Yield (%) FCF Yield (%) CurrencyRating
PE (x)
Note : prices as of April 12, 2011; Ratings and Price Targets are as of the date of the most recently published report (http://www.Nomura.com) rather than the date of this document; AIS, Total Access and True are covered by Capital Nomura Securities Public Co., Ltd.
Source: Bloomberg, Nomura estimates
Valuation methodology and risks Our price target of S$3.42 is based on our DCF sum-of-the-parts model (methodology unchanged). We use an average discount rate (WACC) of 8.26% for the Singapore and Optus businesses, with a terminal growth rate of 2.5%. Our discount rates for its associates are 10-12%, with terminal growth rates ranging from 2% to 4%.
Risks: More aggressive competition in Singapore and Australia, a macro slowdown, further appreciation of the Singapore dollar and slowing growth at associates.
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13 April 2011 Nomura 13
Other Team Members:
Neeraja Natarajan (Associate) — All enquiries arising from this note should be directed to Sachin Gupta.
Any Authors named on this report are Research Analysts unless otherwise indicated
Analyst Certification We, Sachin Gupta and Neeraja Natarajan, hereby certify (1) that the views expressed in this Research report accurately reflect our personal views about any or all of the subject securities or issuers referred to in this Research report, (2) no part of our compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this Research report and (3) no part of our compensation is tied to any specific investment banking transactions performed by Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.
Issuer Specific Regulatory Disclosures Mentioned companies Issuer name Ticker Price Price date
Stock rating
Sector rating Disclosures
Singapore Telecom ST SP 3.01 SGD 12-Apr-2011 Neutral Not Rated 4
Disclosures required in the European Union
4 Market maker Nomura International plc or an affiliate in the global Nomura group is a market maker or liquidity provider in the securities / related derivatives of the issuer.
Previous Rating Issuer name Previous Rating Date of change Singapore Telecom Buy 12-Nov-2010
Singapore Telecom (ST SP) 3.01 SGD (12-Apr-2011) Rating and target price chart (three year history)
For explanation of ratings refer to the stock rating keys located after chart(s)
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Explanation of Nomura's equity research rating system in Europe, Middle East and Africa, US and Latin America for ratings published from 27 October 2008 The rating system is a relative system indicating expected performance against a specific benchmark identified for each individual stock. Analysts may also indicate absolute upside to target price defined as (fair value - current price)/current price, subject to limited management discretion. In most cases, the fair value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as discounted cash flow or multiple analysis, etc. STOCKS A rating of 'Buy', indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of 'Neutral', indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of 'Suspended', indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the company. Benchmarks are as follows: United States/Europe: Please see valuation methodologies for explanations of relevant benchmarks for stocks (accessible through the left hand side of the Nomura Disclosure web page: http://www.nomura.com/research);Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia, unless otherwise stated in the valuation methodology. SECTORS A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months. A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months. A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next 12 months. Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia. Explanation of Nomura's equity research rating system for Asian companies under coverage ex Japan published from 30 October 2008 and in Japan from 6 January 2009 STOCKS Stock recommendations are based on absolute valuation upside (downside), which is defined as (Target Price - Current Price) / Current Price, subject to limited management discretion. In most cases, the Target Price will equal the analyst's 12-month intrinsic valuation of the stock, based on an appropriate valuation methodology such as discounted cash flow, multiple analysis, etc. A 'Buy' recommendation indicates that potential upside is 15% or more. A 'Neutral' recommendation indicates that potential upside is less than 15% or downside is less than 5%. A 'Reduce' recommendation indicates that potential downside is 5% or more. A rating of 'Suspended' indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the subject company. Securities and/or companies that are labelled as 'Not rated' or shown as 'No rating' are not in regular research coverage of the Nomura entity identified in the top banner. Investors should not expect continuing or additional information from Nomura relating to such securities and/or companies. SECTORS A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation.
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A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation. Explanation of Nomura's equity research rating system in Japan published prior to 6 January 2009 (and ratings in Europe, Middle East and Africa, US and Latin America published prior to 27 October 2008) STOCKS A rating of '1' or 'Strong buy', indicates that the analyst expects the stock to outperform the Benchmark by 15% or more over the next six months. A rating of '2' or 'Buy', indicates that the analyst expects the stock to outperform the Benchmark by 5% or more but less than 15% over the next six months. A rating of '3' or 'Neutral', indicates that the analyst expects the stock to either outperform or underperform the Benchmark by less than 5% over the next six months. A rating of '4' or 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark by 5% or more but less than 15% over the next six months. A rating of '5' or 'Sell', indicates that the analyst expects the stock to underperform the Benchmark by 15% or more over the next six months. Stocks labeled 'Not rated' or shown as 'No rating' are not in Nomura's regular research coverage. Nomura might not publish additional research reports concerning this company, and it undertakes no obligation to update the analysis, estimates, projections, conclusions or other information contained herein. SECTORS A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next six months. A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next six months. A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next six months. Benchmarks are as follows: Japan: TOPIX; United States: S&P 500, MSCI World Technology Hardware & Equipment; Europe, by sector - Hardware/Semiconductors: FTSE W Europe IT Hardware; Telecoms: FTSE W Europe Business Services; Business Services: FTSE W Europe; Auto & Components: FTSE W Europe Auto & Parts; Communications equipment: FTSE W Europe IT Hardware; Ecology Focus: Bloomberg World Energy Alternate Sources; Global Emerging Markets: MSCI Emerging Markets ex-Asia. Explanation of Nomura's equity research rating system for Asian companies under coverage ex Japan published prior to 30 October 2008 STOCKS Stock recommendations are based on absolute valuation upside (downside), which is defined as (Fair Value - Current Price)/Current Price, subject to limited management discretion. In most cases, the Fair Value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as Discounted Cash Flow or Multiple analysis etc. However, if the analyst doesn't think the market will revalue the stock over the specified time horizon due to a lack of events or catalysts, then the fair value may differ from the intrinsic fair value. In most cases, therefore, our recommendation is an assessment of the difference between current market price and our estimate of current intrinsic fair value. Recommendations are set with a 6-12 month horizon unless specified otherwise. Accordingly, within this horizon, price volatility may cause the actual upside or downside based on the prevailing market price to differ from the upside or downside implied by the recommendation. A 'Strong buy' recommendation indicates that upside is more than 20%. A 'Buy' recommendation indicates that upside is between 10% and 20%. A 'Neutral' recommendation indicates that upside or downside is less than 10%. A 'Reduce' recommendation indicates that downside is between 10% and 20%. A 'Sell' recommendation indicates that downside is more than 20%. SECTORS A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation. A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation. Explanation of CNS rating system for Thailand companies under coverage published from 2 March 2009: Stocks: Stock recommendations are based on absolute valuation upside (downside), which is defined as (Fair Value - Current Price) / Current Price, subject to limited management discretion. In most cases, the Fair Value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as Discounted Cash Flow or Multiple analysis etc. However, if the analyst doesn't think the market will revalue the stock over the specified time horizon due to a lack of events or catalysts, then the fair value may differ from the intrinsic fair value. In most cases, therefore, our recommendation is an assessment of the difference between current market price and our estimate of current intrinsic fair value.
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Recommendations are set with a 6-12 month horizon unless specified otherwise. Accordingly, within this horizon, price volatility may cause the actual upside or downside based on the prevailing market price to differ from the upside or downside implied by the recommendation. A "Buy" recommendation indicates that potential upside is 15% or more. A "Neutral" recommendation indicates that potential upside is less than 15% or downside is less than 5%. A "Reduce" recommendation indicates that potential downside is 5% or more. Explanation of CNS rating system for Thailand companies under coverage published prior to 28 February 2009: Stocks: Stock recommendations are based on absolute valuation upside (downside), which is defined as (Fair Value - Current Price) / Current Price, subject to limited management discretion. In most cases, the Fair Value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as Discounted Cash Flow or Multiple analysis etc. However, if the analyst doesn't think the market will revalue the stock over the specified time horizon due to a lack of events or catalysts, then the fair value may differ from the intrinsic fair value. In most cases, therefore, our recommendation is an assessment of the difference between current market price and our estimate of current intrinsic fair value. Recommendations are set with a 6-12 month horizon unless specified otherwise. Accordingly, within this horizon, price volatility may cause the actual upside or downside based on the prevailing market price to differ from the upside or downside implied by the recommendation. A "Strong Buy" recommendation indicates that upside is more than 20%. A "Buy" recommendation indicates that upside is between 10% and 20%. A "Neutral" recommendation indicates that upside or downside is less than 10%. A "Reduce" recommendation indicates that downside is between 10% and 20%. A "Sell" recommendation indicates that downside is more than 20%. Sectors: (No change) A "Bullish" rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation. A "Neutral" rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation. A "Bearish" rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation. Target Price A Target Price, if discussed, reflect in part the analyst's estimates for the company's earnings. 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