SingTel earnings to slide on stronger Singapore dollar: Barclays

FY14-16E earnings revised down.

Currency effects, particularly the strengthening of the Singapore dollar, led Barclays to lower its FY14-16E estimates by 3-8%. The research firm assured though that the telco's fundamentals remain "solid."

Here's more from Barclays:

The recent S$ appreciation relative to various regional currencies (A$, INR, IDR, etc) leads us to marginally revise down our FY14-16E earnings by 3-8% as we adjust for currency effects. That said, the fundamentals are solid and we maintain our Overweight rating and S$4 price target on SingTel given its ‘growth and yield’ thesisremains unchanged. We forecast 3-year (FY13-16E) earnings CAGR at 10%; and a 70% payout delivers a yield of 4.6% for FY14E, rising to 5.5% in two years as earnings grow. Potential asset monetization points to the possibility of a special dividend in FY14E – a positive catalyst, if delivered.

Adjusting estimates for stronger regional currencies: The recent S$ appreciation relative to various regional currencies (A$, INR, IDR, etc) leads us to revise down our SingTel earnings estimates as we adjust for currency effects. We have also adjusted for recent changes to Bharti Airtel estimates (click here for note). Net/net, our FY14E EBITDA is adjusted by -2% and FY15E by -1.9%, while our EPS estimates are trimmed by 3.3% and 6.3% respectively for the two years. Incorporating these earnings changes and eliminating a 10% holding company discount previously attributed to associate holdings (given sustained (and rising) dividend flow from the associates), leads to an unchanged SOTP-based price target of S$4 for SingTel.

Maintain OW on three counts: 1) Solid Growth: we see 3-year (FY13-16E) earnings CAGR at 10%; (2) Sound Yield: a 70% payout implies 4.6% yield off our FY13E earnings, rising to 5.5% in two years as earnings grow; and 3) Asset Monetization: potential asset company monetization efforts and the strategic review of the Optus satellite business could throw off material surplus cash, with any signs of definitive progress likely to start to drive special dividend expectations.

1Q FY14 results due on Wednesday, 14 August: We see recurring 1Q FY14 profit at S$904m (+6.4% y/y) – see Figure 5 for full details. We note SingTel’s FY14 guidance was along recently re-organized business lines (consumer, enterprise and digital life) and will look to see if reported accounts are re-classified at some stage to align accordingly (from geographical lines – Singapore, Australia and the associates – currently). In this note we also highlight operational watch factors into the results.

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