DBSVicker Report - 15 April 2008

Singapore Telecom : BUY S$3.87;
Bloomberg: ST SP Associate setback but potential special dividends
Price Target : 12-month S$ 4.35 (Prev S$ 4.50)
By: Sachin Mittal +65 6398 7950

Story: SingTel’s upcoming 4QFY08 results will be clouded by a strong Singapore dollar and not-so strong performance of Indonesian associate Telkomsel. We expect SingTel to complement its regular dividend with a special dividend to be announced with 4QFY08 results.

Point: Three issues surrounding SingTel are (i) concerns of strong appreciation of SGD against the Indian rupee that could impact earnings and valuation contribution of its Indian associate - Bharti in terms of SGD; (ii) significant reduction in tariff of Indonesian associate Telkomsel that could lower its earnings contribution; and (iii) SingTel potentially paying 8-10 cents in special dividends on top of the 6.5 cents regular dividend with 4QFY08 results.

Relevance: We trimmed our pre-exceptional estimates for FY08F and FY09F by 1.4% and 3.7%, respectively. Overall, net profit for FY08F is unchanged due to S$155m exceptional income (evident in 9M08 results) compared to our assumption of S$100m. SingTel remains a BUY with a new sum-of-parts (SOP) based valuation of S$4.35 (prev. S$4.50) due to lower contribution from Telkomsel and Bharti.

SPH: BUY S$4.43;
Bloomberg: SPH SP Core business going strong;
Price Target : 12-month S$ 5.80
BY; Paul Yong +65 6398 7951

Story: SPH reported a good set of operating results as at 1H08, which helped to offset poorer investment income. 1H08 PBT for the core newsprint and magazine business rose by 16% yoy to S$191m, boosted by double-digit ad revenue growth whilst PBT for Treasury and Investment dropped by 76% yoy to S$14.5m, due to a lack of special dividends and a poor equities market. Stronger contribution from the property segment, boosted by contribution from Sky@Eleven also helped offset lower investment income. As at halftime, net earnings for the Group declined by 2% yoy to S$212m. An S 8cts dividend was declared, vs S 7 cts a year ago.

Point: SPH continues to benefit from strong consumer sentiment in Singapore, as evidenced by the double-digit growth in ad spend in 2Q08 and we believe the Group can post double digit earnings growth for the full year for this business even with a slower second half. Meanwhile, we have lowered our investment income projections for FY08 and FY09 and also factored in a delay in construction for Sky@Eleven, which has been affected somewhat by a shortage in manpower and bad weather. These changes have not impacted our sum-of-the-parts valuation for SPH.

Relevance: We continue to like SPH for its attractive valuation and as a defensive stock, backed by a net yield of 7.2% (premised on 90% payout of EBIT; in line with last 6 years), and re-iterate our BUY call. Our 12-month target price is S$5.80, based on SOTP valuation.