SingTel dividends a ‘defensive safe haven’

Event
Core net profit (excluding an exceptional gain of $61m) fell 7.4% YoY to $873m, meeting just 22% of our full‐year forecast. However, the stock should provide a relatively defensive safe haven from the equity market turmoil with a yield of almost 6%. Maintain HOLD and target price of $3.29 (13.5x PER).

Our View
Bharti’s 1QFY Mar12 results disappointed. Core profit (excluding Africa) was hurt by higher 3G‐related depreciation and interest costs plus a higher tax rate. But revenue rose 12% YoY and EBITDA margin was stable. In Africa, the business remained a drag though revenue improved. The recent increase in mobile tariff suggests Bharti may be turning the corner, but we wait to see if call volume is unaffected.

However, any turnaround by Bharti will be capped by the strength of the Singapore dollar, which recently reached 20‐year highs relative to the Indian rupee, not to mention the Philippine peso and the Thai baht. In 1QFY Mar12, Globe and AIS (25% of associates’ income) did better YoY but overall share of associates’ income still fell by 6% YoY, dragged down by Bharti (30% of associates’ income).

Singapore earnings also fell short of expectations (‐12% YoY) due to higher selling costs arising from greater smartphone penetration in both Singapore and Australia, as well as higher Pay TV content and rollout costs. Australia did not fare much better in a hyper‐ competitive market, with net profit down 5% YoY as it came off a seasonally‐strong quarter augmented by one‐off cost savings.