Tech Stock Focus:SingTel Still A Buy,Despite Fall In Rev
By SAI MAN
OF DOW JONES NEWSWIRES
SINGAPORE -- Despite intensifying competition at home affecting its revenue, Singapore Telecommunications Ltd. (P.SGT) shares are still worth a buy as the regional telecom carrier is nearly done building a pan-Asian network that will give it more heft to rival the likes of Australia's Telstra Corp. (TLS) and Hong Kong's Pacific Century Cyberworks Ltd. (H.PCW).
Overall, analysts and fund managers continue to maintain their buys on SingTel. Southeast Asia's biggest telecom operator is holding up pretty well revenue-wise despite the ongoing recession, helped partly by growing revenue streams from operations outside Singapore, they say.
HSBC Securities and G.K. Goh are among the brokerages recommending a buy on the stock. HSBC sees SingTel trading up to S$2.00, while G.K. Goh places fair value for SingTel shares at around S$2.12.
Tuesday, SingTel shares closed 1.2% higher at S$1.70.
When times are tough, investors tend to go for more reliable stocks, including blue chips like SingTel, analysts note. "SingTel will outperform the market...because of uncertainty as to whether the (Singapore) economy will go deeper (into recession)," said an analyst at a large foreign brokerage.
Once SingTel has spent some time digesting its Australian and Indonesian acquisitions, on which it spent S$14.1 billion (US$1=S$1.8225) this year, it will most likely take another crack at Malaysia to complete its regional ambitions, analysts say.
A sizable stake in a Malaysian telco would be an important piece of SingTel's regional jigsaw, and should be positive for its share price because of the synergies that will create, they say.
Keane Chung, a fund manager at INVESCO Asset Management, said investing in Malaysia makes sense for SingTel because it could leverage off the huge flow of communications traffic between Singapore and Malaysia, such as roaming services.
Malaysia's mobile penetration rate of around 30% offers plenty of growth potential, compared with the 77% penetration rate in Singapore, analysts note.
But they say the extent to which a Malaysian deal would boost SingTel shares would depend on a number of factors.
"The impact on earnings will depend on what price SingTel pays, what and how much they buy in Malaysia," said INVESCO's Chung.
For the time being, however, SingTel's two new international assets won't impact its bottom line.
Contributions from its wholly owned Australian mobile-phone unit, Optus, acquired earlier in the year, won't be consolidated into SingTel's balance sheet for the fiscal second quarter ended Sept. 30. Earnings from SingTel's 22.3% stake in Indonesian mobile-phone company, PT Telekomunikasi Selular Indonesia, acquired a week ago for US$602 million, won't be taken into account until the full year ending March 2002.
The real impact will come in the long term, when SingTel's stable of six international mobile telecom assets start to reap economies of scale, through traffic pooling, co-development of new services and products, for instance. SingTel will also have more bargaining power when it comes to buying mobile handsets in bulk, analysts point out.
Overseas Contributions To Cushion Fall In Revenue
Indeed, analysts say contributions from SingTel's overseas investments, including the Philippines and Thailand, should help cushion the blow to SingTel's revenue from intense competition that has eaten into its international calling and mobile-phone business segments in Singapore.
SingTel will announce second-quarter earnings Thursday.
Overseas revenue is expected to make up a significant 20-22% of the company's earnings for the quarter, analysts say.
Five analysts surveyed by Dow Jones Newswires forecast for SingTel a net profit of S$500 million for the second quarter, down 23% from the year-ago period; that translates into first-half net earnings of S$1.1 billion, down 11% on-year.
In Singapore, much lower international direct dialing (IDD) rates amid tough competition from MobileOne (Asia) Pte. Ltd., StarHub Pte. Ltd. and other IDD resellers could drag down SingTel's IDD revenue by 10% to about S$562 million in the first half. This, despite an expected rise in IDD traffic as more people are communicating with each other and making more overseas calls after the Sept. 11 attacks on the U.S., analysts say.
SingTel's mobile-phone business in Singapore faces similar price pressure, with fierce competition causing average revenue per user (ARPU) to fall.
"The war (among local mobile players) has been going on for years. With the size of the pie not growing as much, SingTel has to defend market share" by cutting prices, said Danny Chung, an analyst at local brokerage J.M. Sassoon & Co. SingTel has a 50-55% share of the local mobile-phone market, he added.
No Major Deals Expected For The Time Being
What next for SingTel? Most likely another foray into neighboring Malaysia, after its failed bid for Time dotCom last year, analysts predict.
A stake in Maxis Communications Bhd. is a likely target for SingTel, as the Malaysian mobile operator is well run and has the higheset ARPU in the country, analysts say.
"If SingTel is to become a major player in the Asia Pacific, it has to have a presence in Malaysia, which is its close neighbor," said Paul Heng, an analyst at Fraser Securities.
Few doubt SingTel will succeed in doing so, but it isn't likely to make a deal in Malaysia in the near term, market observers say.
Last week, SingTel said it would slow down in terms of major acquisitions for the time being, and focus on integrating Optus - for which it paid A$14 billion - into the SingTel group.
SingTel can afford to fund another deal, but given its conservative approach, analysts say now isn't a good time as it wants keep its debt-to-equity ratio at no more than 30-40%.
"Going forward, SingTel is swinging from a net cash position to a net debt position (for the second half ending March 2002)," and therefore has to be careful about how much it spends, said Sassoon's Chung.
-By Sai Man, Dow Jones Newswires, +65-415-4155,
sai.man@dowjones.com
--------------------------------------------------------------------------------
URL for this Article:
interactive.wsj.com
--------------------------------------------------------------------------------
Copyright © 2001 Dow Jones & Company, Inc. All Rights Reserved.
Printing, distribution, and use of this material is governed by your Subscription Agreement and copyright laws.
For information about subscribing, go to wsj.com
Used with permission of wsj.com |
