SingTel earnings potential looking weaker: OCBC

Latest lackluster results led to a 2.5% downward revision for FY12 profits despite a higher revenue forecast.

FY13 has even bleaker prospects on earnings. SingTel is expected to endure more punitive content costs, which led OCBC to lower its earnings expectations for that period by a significant 8.5%.

Here's more from OCBC:

Mildly disappointing 3QFY12 results
SingTel posted its 3QFY12 results yesterday, with revenue up 2.7% YoY and 4.8% QoQ to S$4830m, underpinned by robust mobile performance in Singapore (SG) and Australia (AU). But net profit fell
9.6% YoY (+2.3% QoQ) to S$902m, mainly due to weaker contribution from Associates (down 17.9% YoY and 13.1% QoQ). Meanwhile underlying net profit was down 7.5% YoY but rose 1.1% QoQ to S$895m. For 9MFY12, revenue grew 4.6% to S$14045m, meeting 78% of FY12 estimate, while net profit fell 4.3% to S$2653m, or 68% of our full-year forecast.

Associates actually did well
According to management, the weaker contribution from Associates was mainly due to unfavourable forex movements – in particular, the steep 15% depreciation of the INR against the SGD had impacted Bharti’s contribution. Otherwise, Associates actually recorded strong operating performance; both Telkomsel and AIS delivered double-digit revenue growth and higher profits driven by sustained growth momentum in data; Bharti Africa also reported positive free cash flow for the first time in 3QFY12.

Maintains FY12 guidance
Going forward, SingTel has reiterated its FY12 guidance, which came as no surprise. Management is also upbeat about the NBN roll-out in SG, where it estimates that it has around 50% market share; intends to build up a content-rich eco-system to help drive fiber demand. Over in AU, Optus will be rolling out its LTE network and expects to
offer a capital city service roll-out in 2H12. And as before, SingTel has also kept its dividend policy unchanged at 55-70% of underlying net profit.

Maintain BUY with S$3.69 fair value
To reflect the latest results, we have raised our FY12 revenue forecast by 2.5%, but lowered our earnings estimate by 5.4%. While we are also lowering our FY13 earnings estimate by 8.2% to reflect higher content costs, our SOTP-based fair value remains unchanged at S$3.69, still supported by the higher Associates valuations. Maintain BUY.