Kim Eng Research 19 Dec
Indian headwinds. SingTel is facing growing headwinds from India as the rupee has fallen by 19% YTD, making it the worst-performing Asian currency this year. Also causing some uncertainty are potential changes to government regulations surrounding additional spectrum fees, as well as the removal of domestic roaming fees and halving of mobile termination rates. While associate Bharti Airtel’s growth prospects appear to be reviving at last, we still prefer StarHub to SingTel given the latter’s rising risk profile.
Free-falling Indian rupee. The Indian rupee has tumbled by 19% YTD and fell further to an all-time low of Rs41.43 against the S$ last week. SingTel’s 32.2%-owned Bharti has accounted for 28% of associate contributions YTD, and will contribute an estimated 16% of FY Mar12F pretax profit. As the rupee is currently below our assumption of Rs39 for FY Mar12, we cut our full-year earnings forecast for SingTel by 3%.
Indian headwinds. SingTel is facing growing headwinds from India as the rupee has fallen by 19% YTD, making it the worst-performing Asian currency this year. Also causing some uncertainty are potential changes to government regulations surrounding additional spectrum fees, as well as the removal of domestic roaming fees and halving of mobile termination rates. While associate Bharti Airtel’s growth prospects appear to be reviving at last, we still prefer StarHub to SingTel given the latter’s rising risk profile.
Free-falling Indian rupee. The Indian rupee has tumbled by 19% YTD and fell further to an all-time low of Rs41.43 against the S$ last week. SingTel’s 32.2%-owned Bharti has accounted for 28% of associate contributions YTD, and will contribute an estimated 16% of FY Mar12F pretax profit. As the rupee is currently below our assumption of Rs39 for FY Mar12, we cut our full-year earnings forecast for SingTel by 3%.
Uncertainty over new telecom policies. Potential changes to government regulations surrounding additional spectrum fees, as well as the removal of domestic roaming fees and halving of mobile termination rates, are also causing uncertainty at this time. Bharti believes things will only clear up early next year. But there may also be M&A opportunities as the government is encouraging consolidation of 54.1 the market, where new 2G players are bleeding heavily.
On the bright side, domestic growth prospects should revive. Our Indian telecom analyst expects earnings growth of 6% in FY Mar12 and 44% in FY Mar13 for Bharti, led by 3G operations breaking even and strong growth in Africa. As at 2QFYMar12, Bharti’s core market margins have also begun to expand again on rising tariffs. However, if the new telecom policies fail to play out well, he expects FY Mar13 EPS to be cut by 22%, reducing full-year growth for Bharti to 16%.
Prefer StarHub. We maintain our Buy call on SingTel as it still offers a relatively safe refuge for investors looking to park funds away from current stock market volatility. On balance, however, we prefer StarHub given SingTel’s rising risk profile. 
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