SingTel’s net profit to be flat at S$850m-880m in 2Q12

CIMB expects 2H to be stronger given that affiliate Bharti’s performance would improve on the back of tariff hikes.

Associate contributions should also rise despite weak contributions from Bharti, thanks to ADVANC and Telkomsel.

Here’s more from CIMB:

We expect SingTel’s 2QFY12 core net profit to be flat qoq and yoy. Also, SingTel is looking to buy 2% of ADVANC from Shin Corp at THB130/share, a value which we deem fair.

What Happened
Bharti’s 2Q11 highlights were: 1) total minutes declined for the first time, under the influence of seasonality and the economy; and 2) mild revenue growth (+1.7% qoq) as there was a fall in minutes and ARPUs in India while business in Africa grew strongly thanks to elasticity gains; 3) margins were firm with strength in Africa, and 4) one-off finance cost and regulatory payments.

The conference call highlighted that irrational pricing by the smaller players has been ignored by the incumbents and also, Bharti’s confidence in Africa as it raises its capex guidance there.

2QFY12 results preview
We estimate a 2QFY12 core net profit of S$850m-880m, flat qoq and yoy, trending a little below both CIMB and consensus estimates. While this may trend a little behind our FY12 forecast of 4% growth, we expect 2H to be stronger on expectations that Bharti’s performance would improve on the back of tariff hikes.

SingTel Singapore’s core net profit should decline qoq on lower seasonal margins. Associate contributions should rise despite weak contributions from Bharti, thanks to ADVANC and Telkomsel. The main uncertainty is Optus given intense competition in Australia. The A$ had strengthened 4% qoq against the S$ after falling 3% the previous quarter.

Lastly, SingTel is looking to buy 2.05% of ADVANC from Shin Corp at up to THB130/share.

What We Think
While Bharti’s 2Q is disappointing and its business in India/South Asia shows the strains of defending its market leadership, we note the effects of seasonality. We believe that recent pricing hikes would also benefit Bharti once the effects flow through. In the longer term, minutes should flow back to the incumbent especially if consolidation occurs.

We are neutral on SingTel’s proposed acquisition of ADVANC, given that the valuation is fair.

Maintain OUTPERFORM. Bharti’s results, while a disappointment, do not alter our positive view on SingTel which we like for the improving fundamentals among its units and yields. It is one of our top picks in the region.

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