Moody's: SingTel's 1H FY2012/13 Results in Line with Expectation

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Moody's Investors Service notes that Singapore Telecommunications's (SingTel) first half financial results despite negative revenue growth year on year were in line with Moody's expectations as such there is no immediate impact on SingTel's Aa3 debt rating. The rating outlook remains stable.

Group revenue fell 1.2% for the first six months, largely driven by Optus in Australia (3.7% decline) where there was a mandated reduction in mobile termination rates, decline in equipment sales and service credits associated with device repayment plans. By contrast Singapore-based operations reported healthy 6% revenue growth for the first six months driven by broad based growth across Mobile, Data and Internet and IT and Engineering.

"The strong performance from the Singapore-based operations, together with a reduced contribution from the margin dilutive handset sales business in Australia, helped to stymie the impact of falling group revenue, such that EBITDA for the first six months only declined by 1%, thereby contributing to an increase in reported Group EBITDA margins to 27.6%," says Nidhi Dhruv, a Moody's Analyst and also the Lead Analyst for SingTel.

Mobile continues to be the principal driver behind SingTel, accounting for some 43.5% of group revenue. Total mobile revenues fell 2.4% for the first six months reflective of declining ARPUs primarily in Australia and to a lesser extent in Singapore -- markets which continue to remain highly competitive. However there was a marked decline in subscriber acquisition costs, particularly in Australia, which helped to mitigate any deleterious impact on EBITDA.

Cash dividends from associates increased 29.4% for the first half to S$888 million, the increase largely attributable to Telkomsel (Baa1/stable) in Indonesia and AIS (unrated) in Thailand.

On a last twelve months basis (LTM), the Group's adjusted EBITDA improved by 2.7% to S$6.6 billion while adjusted debt fell by approximately S$260 million compared to March 31,2012. Consequently, SingTel's leverage is about 1.6x (based on LTM adjusted debt/EBITDA with cash dividends from associates added back to EBITDA). A marked improvement from the 1.7x recorded at FY March 31, 2012 driven mainly by the higher EBITDA and a 22% increase in cash dividends received, albeit distorted mainly by the timing of the dividend payout from Telkomsel, and despite weaker regional currencies in particular Indian Rupee and Indonesian Rupiah.

"SingTel financial metrics and liquidity profile remain strong and continue to leave its standalone rating well positioned at a2," says Dhruv, adding "the final rating incorporates expected support from its major shareholder, Temasek Holdings (Pte) Limited (Temasek, Aaa/stable).

SingTel intends to dispose its entire 30% stake in Warid Telecom (Private) Limited (Warid) in Pakistan. Moody's view the disposal as a credit positive as, post sale, there will be reduction in SingTel's total adjusted debt of US$90 million (S$110 million) reflecting the cancellation of the guarantee currently provided by SingTel, and that is reflected in our adjusted metrics. In addition, Moody's does not foresee any significant impact to SingTel's EBITDA as Warid represents only a fraction of the Group's operations and has yet to make any cash contribution through dividend payments to SingTel's EBITDA.

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