SingTel headed for a slow year

Bharti's slower-than-expected growth erodes and Singaporeans' slow adoption of Android phones are not helping SingTel, said DBS Vickers.

The cost pressure from 3G rollout in India was underestimated despite the improved competitiveness in India and the margin improvement in Africa. According to DBS Vickers, this slower growth from Bharti erodes SingTel's appeal as a cheap proxy to Bharti.

Moreover, Singapore continues to lag behind markets like the US and UK in terms of popularity of Android based phones, which require lower subsidies than iPhones. Higher breakeven costs of iPhones may continue to burden the margins of cellular players in Singapore.

DBS Vickers projects a 70% payout ratio for SingTel for FY11F/12F, towards the top end of SingTel's guidance of 55%-70%.

SingTel needs to (i) increase its earnings payout ratio to ~80% to formulate an attractive (~6.5%) dividend yield, or (ii) perform capital management proactively on top of its 70% payout ratio.