Friday, August 23, 2013

Singtel

Singtel: Deutsche maintains Buy with $4.30 TP. House note that India and Indonesia are in the spotlight amidst recent emerging market duress, with house economists expecting an ongoing feedback loop in both markets, fuelled by financial market stress an economic setback. Against this backdrop, Deutsche now expects further weakening of the INR and IDR before the end of the year. This is relevant to SingTel given India and Indonesia are expected to contribute 9% and 12% respectively to FY14e group earnings. Based on house SOTP, each of these markets accounts for 13-14% of SingTel’s value. So, the fact that the SGD is up 12% and 7% YTD against the INR and IDR respectively (with substantial proportion of those gains booked in the last two to three weeks) is clearly a negative. The impact on FY14-16e underlying NPAT is a contained 1% reduction in each year, and house SOTP is pared down to S$4.30 (from $4.38) as a result. While the earnings impact on its FX revisions is fairly marginal, significant FX moves would imply downside risks to our estimates. Overall, house still maintains Buy as Valuations are supported by improving fundamentals in all key markets. SingTel’s share price has fallen 7% since the start of Aug, bringing the stub PER to 14.7x, although at 1 SD above the long-term historical average PER, this is still not particularly cheap. But believe valuations are supported by expectations of improving fundamentals in SingTel’s key markets.

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