SingTel
June 21 close: S$3.44
CITIGROUP RESEARCH, June 20
RAISING target price to S$3.90: Higher stake value on a higher Bharti target price offsets modestly lower value for the Singapore business to drive a higher target price. We see associate growth driving 13 per cent/12 like-on-like EPS growth in FY08/FY09. It is at 12 per cent discount on PE to the Singapore market now and in the money on DPS of 16 cents, in addition to sustained associate value accretion potential. Recommend 'buy'.
Another growth driving acquisition - an ideal catalyst: Comparatively conservative payout could mean an acquisition comes sooner than later. That said, asset valuation expectations amid bullish markets are high - potential targets may not fit SingTel's strictly disciplined acquisition criteria.
Acquisition potential - Bharti, Pakistan, Vietnam, and Central Asia: Vodafone's 5.6 per cent stake in Bharti is to be sold back to the Bharti group in two tranches - the first before March 2008 and the second by November 2008. We see SingTel as an interested buyer should any opportunity arise. As for the other potential target markets, the issue is that of a willing seller for the right asset at the right price.
Singapore: lower estimates on IPTV content costs. Ebitda estimates trimmed 4 per cent/3 for FY08E/FY09E to reflect higher content aggregation costs. Ebitda cuts and higher capex assumptions drive 8 per cent cut in Singapore business DCF estimate.
Optus: no expectations amid another transition year. Stable Ebitda guidance for FY08 has already set the expectations bar reasonably low - we think this provides the management some wiggle room to experiment. Mobile revenue and margins and fixed line business transition (away from broadband resale, joint venture with Elder) are our two primary watch points.
BUY
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