Singtel – CIMB
Looming face-off with StarHub
• Downgrading our call. We are cutting our recommendation on SingTel to UNDPERFORM from neutral as we are concerned over the looming bidding war for content with StarHub and the strengthening S$ which may dilute overseas earnings.
• Get your popcorns ready. We expect a very intense bidding war between SingTel and StarHub over the exclusive rights of the 2010-2012 seasons of the Barclays Premier League and 2010 World Cup in mid-09. BPL is the crown jewel of content, and a must-have of for any pay TV operator looking to have traction in Singapore.
• Concerns over content costs. Based on our discussions with industry players, we expect the cost for the BPL rights to double to S$400m in Singapore. If SingTel loses again, which is our base case, we think it will be another setback for its fledgling pay TV franchise mio TV and quadruple-play aspiration. If SingTel wins, it would be a crucial foot in the door to gain traction in the pay TV industry, but at a hefty price and likely at the expense of shareholder value in the short term.
• Rising S$. The strengthening Singapore vis-à-vis the regional currencies continues to be a concern, which we believe will further dilute overseas contributions.
• Cutting target price. We are tweaking FY09-11 net profit estimates by -1% to 2% on the back our revision in currency forecast. We have not imputed higher content cost for SingTel for FY11 as we assume StarHub will clinch the rights. However, we are cutting our SOP-based target price from S$3.80 to S$3.50 after raising SingTel Singapore’s WACC to 9.1% vs 8.0% due to the risk of overbidding. Key de-rating catalysts are rising concerns over a bidding war; and a strengthening S$.