3Q FY2009 Results. SingTel reported 3Q FY2009 operating revenue of S$3,701m (-3.2% yoy) and net profit of S$799m (-16.1% yoy). Revenue dropped as a result of the 23% decline of the Australian dollar against the Singapore dollar. This caused lower revenue contributions from Optus. Moreover, net profit fell by a larger percentage of 16.1 percent because the pre-tax profit contributions from the regional associates decreased by 24 percent to S$486m.

Despite the fall in profit, SingTel highlighted that it had a strong financial position and aimed to achieve cost efficiencies. For instance, it froze the hiring of employees. Although there were economic uncertainties, it was looking for acquisitions to grow its regional revenue contributions.

Performances. The Singapore operations recorded 21.0 percent increase in revenue due mainly to contributions from Singapore Computer Systems Ltd (SCS), which was acquired in 3Q FY2009. Even when SCS was excluded, revenue grew by 7.1 percent.

Similarly, Optus reported a 10.2 percent increase in revenue as it added 213,000 new mobile and wireless broadband customers in 3Q FY2009. The weaker performances of the associates were due to the depreciation of the regional currencies and poor performances by Telkomsel, Globe and Warid.

FY2009 Outlook. It expects the operating revenue for the Singapore and Australian businesses to grow at single-digit level. However, the regional mobile associates are likely to report lower pre-tax earnings. At the same time, it expects its earnings to be negatively affected by the depreciation of the Australian dollar and the regional currencies against the Singapore dollar.

Maintain BUY recommendation and target price reduced from S$3.86 to S$3.80. We have reduced the target price slightly from S$3.86 to S$3.80 as we have cut our estimated profit contributions from SingTel’s regional mobile associates. This is mainly due to expectations that Telkomsel and Globe will report lower profits due to greater competition in their markets.

However, we continue to rate SingTel as a BUY. It is the strongest player in Singapore, number two in Australia and has profit contributions from its regional mobile associates.