Singapore | Telecom Services

Asia Pacific Equity Research

SINGTEL | HOLD
MARKET CAP: USD 45.9B AVG DAILY TURNOVER: USD 62M 4 July 2013 Company Update

NO MYANMAR, NO PROBLEM
Setback only temporary Likely opportunities later Value emerging closer to S$3.50

HOLD (maintain)
Fair value add: 12m dividend forecast versus: Current price 12m total return forecast
Analysts Carey Wong (Lead) +65 6531 9808 carey@ocbc-research.com Andy Wong +65 6531 9817 andywong@ocbc-research.com Key information Market cap. (m) Avg daily turnover (m) Avg daily vol. (m) 52-wk range (S$) Free float (%) Shares o/s. (m) Exchange BBRG ticker Reuters ticker ISIN code GICS Sector GICS Industry Top shareholder Relative total return Company (%) STI-adjusted (%) Price performance chart
Shar e P r i c e (S$ ) I ndex Level

S$3.83 S$0.160 S$3.66 9%

Not among winners in Myanmar SingTel, despite being widely touted as a front-runner, was not among the two winners of the 15-year telecommunications licences in Myanmar. Instead, Norways Telenor and Qatars Ooredoo (formerly known as Qatar Telecoms) won these much-coveted licences to roll out telecommunications infrastructure across the country which probably has one of the lowest mobile penetration rates of just 10% in the world. May not be a bad thing While SingTel did initially suffer a minor pullback in its share price after the announcement of the results, we note that it was probably due to the sharp run-up in share price just prior to the news. But overall, not winning it may not be a bad thing, given the massive scale involved in the infrastructure roll-out, where some market watchers believe that the capital investment could run into the tens of billions of dollars. Ooredoo will reportedly invest US$15b over the 15year period. Furthermore, we note that the regulatory environment is still very uncertain there, and that could probably put a cap on subscription rates, which could result in operating losses for the first few years. Still opportunities to get involved at a later stage However, we believe that there are still opportunities for SingTel to get involved at a later stage when the industry is more settled and the regulatory environment is more established. Market watchers estimate that the mobile market in Myanmar could be worth some US$2.6-3.0b in 2016. Maintain HOLD Separately, we see the recent volatility in the regional currencies as the biggest risk factor, as SingTel is especially exposed to AUD/SGD movements because of Optus. However, we do note that some value is starting to emerge around current levels, as SingTel has fallen back to below our SOTP fair value of S$3.83. Hence we maintain our HOLD rating and would be buyers closer to S$3.50.

S$58,353 / USD45,886 S$79 / USD62 22.8 3.1 - 4.09 47.8 15,943.5 SGX ST SP STEL.SI Z74 Telecom Services Wireless Telcom Temasek - 57.2% 1m -2 3 3m 3 7 12m 16 6

4.00 3.57 3.15 2.73 2.30 1.88 Jul -12 Oct-12 Fai r Val ue Jan-13 ST SP Apr -13
`

5100 4540 3980 3420 2860 2300 Jul -13 FSSTI

Sources: Bloomberg, OIR estimates

Key financial highlights Year Ended 31 Mar (S$m) Revenue EBITDA Operating Profit Net Profit EPS (S cents) Cons. EPS (SG cents) Price/NTA (x) EV/EBITDA (x) Net Gearing (%) ROIC (%) FY12 18,825.0 5,218.0 3,302.0 3,987.0 25.0 na 4.4 12.6 30.9 12.5 FY13 18,183.0 5,199.8 2,918.8 3,507.8 22.0 na 4.4 12.5 28.2 11.1 FY14F 17,959.4 4,487.9 2,417.5 3,733.9 23.4 24.2 4.3 14.5 27.0 11.5 FY15F 18,189.8 4,546.4 2,449.7 3,752.8 23.6 26.7 4.2 14.1 23.0 11.5

Industry-relative metrics
P er cent i l e 0t h 25t h 50t h 75t h 100t h

M kt Cap B et a ROE PE PB Company I ndust r y A ver age

Note: Industry universe defined as companies under identical GICS classification listed on the same exchange. Sources: Bloomberg, OIR estimates

Please refer to important disclosures at the back of this document.

MCI (P) 004/06/2013

OCBC Investment Research Singapore Equities

Exhibit 1: Correlation of 0.64 between SingTels share price and AUD/SGD

1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 Oct-11 Oct-12 Feb-12 Feb-13 Sep-08 Sep-09 Sep-10 Feb-11 Jan-09 Jan-10 May-09 May-10 Jun-11 Jun-12 Jul-13

4.5 4 3.5 3 2.5 2 1.5 1 0.5 0

SingTel Share Price

AUD/SGD

Source: Bloomberg, OIR

Share price tracks AUD/SGD Over the last five years, we note that SingTels share price tracks the AUD/SGD rate quite closely with a correlation of 0.64. This does not come as a surprise as Optus accounts for some 63-65% of the groups revenue over the past five years.

OCBC Investment Research Singapore Equities

Company financial highlights

Income statement Year Ended 31 Mar (S$m) Revenue EBITDA Depreciation & amortisation Operating Profit Net interest Associates Exceptionals Pre-tax profit Tax Net Profit

FY12 18,825.0 5,218.0 -2,002.0 3,302.0 -341.0 2,005.0 86.0 4,966.0 -978.0 3,987.0

FY13 18,183.0 5,199.8 -2,127.0 2,918.8 -299.0 2,106.0 -154.0 4,725.8 -1,216.0 3,507.8

FY14F 17,959.4 4,487.9 -2,070.4 2,417.5 -409.0 2,148.1 0.0 4,156.6 -422.7 3,733.9

FY15F 18,189.8 4,546.4 -2,096.7 2,449.7 -418.5 2,148.1 0.0 4,179.3 -426.5 3,752.8

Balance sheet As at Dec 31 (S$m) Cash Other Current Assets Fixed Assets Other long term assets Total Assets Current Liabilities less Debt Debt Other Long Term Liabilities Shareholders Equity Total Equity and Liabilities

FY12 1,346.4 4,472.1 11,580.0 23,019.1 40,417.6 5,429.6 8,576.2 2,963.9 23,427.5 40,417.6

FY13 911.0 3,894.8 11,724.9 23,452.8 39,983.5 5,441.8 7,679.7 2,872.8 23,964.6 39,983.5

FY14F 956.6 3,826.5 11,452.3 23,988.1 40,223.4 4,885.4 7,644.7 2,872.8 24,795.9 40,223.4

FY15F 963.2 3,875.5 11,133.8 24,523.4 40,495.9 4,944.1 6,880.2 2,872.8 25,774.2 40,495.9

Cash flow statement Year Ended 31 Mar (S$m) Operating Profit Working Capital Changes Net Cash from Operations Capex Investing Cash flow Change in Equity Net Debt Change Financing Cash Flow Net Cash flow Ending Cash Balance

FY11 5,232.0 11.3 5,710.4 -2,248.7 -2,755.2 -10.6 -837.2 -4,243.0 -1,391.6 1,346.4

FY12 5,172.0 -91.8 5,817.5 -2,058.6 -2,830.2 1.8 -896.5 -3,755.3 -435.4 911.0

FY13F 4,667.1 -340.5 5,295.0 -2,500.0 -2,497.6 0.0 -35.0 -3,055.0 45.6 956.6

FY14F 4,645.2 8.5 5,621.2 -2,400.0 -2,194.5 0.0 -764.5 -3,863.6 6.6 963.2

Key rates & ratios EPS (S cents) Fully Diluted EPS (S cents) PER (x) Price/NTA (x) EV/EBITDA (x) Dividend Yield (%) ROIC (%) ROE (%) Net Gearing (%) PE to Growth (x) Sources: Company, OIR forecasts

FY12 25.0 25.0 14.6 4.4 12.6 4.3 12.5 17.0 30.9 3.4

FY13 22.0 22.0 16.6 4.4 12.5 4.6 11.1 14.6 28.2 -1.4

FY14F 23.4 23.4 15.6 4.3 14.5 4.7 11.5 15.1 27.0 2.4

FY15F 23.6 23.5 15.5 4.2 14.1 4.8 11.5 14.6 23.0 30.6

Company financial highlights

OCBC Investment Research Singapore Equities

SHAREHOLDING DECLARATION:

The analyst/analysts who wrote this report holds/hold shares in the above security.

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Carmen Lee Head of Research For OCBC Investment Research Pte Ltd

Published by OCBC Investment Research Pte Ltd

Important disclosures