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UPDATE 3-SingTel profit beats forecast on Asia mobile growth

(Adds quotes from briefing, share price)

SINGAPORE, May 14 (Reuters) - SingTel STEL.SI, Southeast Asia's largest phone company, beat market forecasts with a 9 percent rise in quarterly profit, thanks to rapid mobile user growth especially in India, but it warned of an uncertain outlook.

State-controlled Singapore Telecommunications SGT.AX, which derives about three quarters of its sales outside Singapore, kept its target of delivering double-digit underlying earnings growth over the medium term.

It also raised its dividend payout ratio to 45-60 percent of underlying net profit, from 40-50 percent.

“The environment remains challenging with the outlook for the global economy looking more uncertain,” Chief Executive Chua Sock Koong said, adding that the group’s fundamentals remained strong.

Together with 30-percent-owned Indian associate Bharti Airtel Ltd BRTI.BO, SingTel is in talks with South African operator MTN Group Ltd MTNJ.J for a potential acquisition, but the negotiations were "at an extremely preliminary, exploratory stage", Chua told reporters.

Singapore’s largest listed firm forecast single-digit growth in revenues for Singapore and Australia, but double-digit growth in earnings contributions from its regional mobile associates.

“The results were better than expected, thanks to Singapore and Thailand and a lower-than-expected tax rate, but we expect lower contributions from the associates going forward, due to a price war in Indonesia and slower growth in the Philippines,” said DBS Vickers Securities analyst Sachin Mittal.

SingTel shares were up 0.3 percent at S$3.76 by 0355 GMT, off an early high of S$3.78.

The company made underlying net profit before goodwill and exceptionals of S$968 million ($706.6 million) in the January-March quarter, compared with S$886 million a year ago.

This was above an average net profit forecast of S$856.6 million from 14 analysts polled by Reuters.

Operating revenue rose 11 percent to S$3.76 billion.

MTN TALKS EXPLORATORY

Facing a domestic market of just 4.6 million people where virtually everyone has a mobile phone, SingTel has spent S$18 billion in recent years buying stakes in mobile operators in high-growth Asian countries such as India and in the bigger Australian market.

Lim Chuan Poh, chief executive of SingTel’s international operations, said it was too early to say if Bharti would make a formal bid for MTN, or if SingTel would help provide financing for the deal.

The key question is what SingTel will do with its cash, said Theo Maas, a Sydney-based analyst at Fortis Investment Partners.

“SingTel is heavily undergeared at the moment: they’ve got cash coming out their ears. It seems to me they’re keeping their powder dry in terms of what’s happening on the Bharti side, with the talks with MTN,” he added.

The group’s free cashflow surged 28 percent to S$3.58 billion for its fiscal year ended March.

Australia’s Optus -- SingTel’s single-biggest revenue and profit generator -- posted a 1.4 percent rise in full-year earnings before interest, tax, depreciation and amortisation (EBITDA) to A$2.02 billion ($1.9 billion), excluding a A$13 million write-off for a cancelled government contract.

The unit -- Australia’s second-largest mobile operator which holds a third of the mobile market -- faces cut-throat price competition, slowing subscriber growth and regulatory changes in a saturated Australian market.

SingTel also owns big stakes in six emerging market mobile operators, including Globe Telecom GLO.PS in the Philippines and Indonesia's Telkomsel TLKM.JK. Most have shown phenomenal growth in wireless subscribers in recent years.

Pre-tax earnings from the associates rose 18 percent to S$630 million in the quarter, driven mainly by Bharti and a 2 percent appreciation of the Indian rupee against the Singapore dollar.

SingTel also benefited from a one-off gain of S$153 million from the sale of Bharti’s minority stakes to investors in a unit.

But Lim shrugged off suggestions that Telkomsel’s earnings contributions would slow following a fierce price war. Some analysts have downgraded Indonesia’s top mobile operator on expectations of market share losses and margin erosion.

“Telkomsel is going through a phase where new players are becoming price aggressive, but growth is still strong. Relative to the market, Telkomsel is still performing well,” he added.

($1=1.37 Singapore Dollar)

$1=1.061 Australian Dollar Additional reporting by Ben Wilson in SYDNEY; Editing by Jan Dahinten and Kim Coghill

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