Telecom – AmFraser

Mobile subscribers grew 1.5% QoQ in 2Q09

• Monthly mobile subscriber net adds picked up to 33,000 in 2Q09, from 25,000 in 1Q09. This represented a 1.5% QoQ growth, and 5.7% YoY growth to 6.5 million subscribers. While the net adds are far off the heady levels seen before 3Q08 and the peak of 113,000 in 4Q07, the pick up (albeit small) is encouraging and marks a trough in 1Q09.

• Total mobile subscribers revised up to YoY growth of 6% in FY09 and 7% in FY10 to 6.7 million and 7.2 million, respectively. While the revision is a marginal 1% and 3% respectively, this marks improving sentiments in the macroeconomic environment in the recent three months. We consider the growth fairly healthy, in a market where penetration stands at 134.6% at June 2009. Prepaid accounted 49% of the market with 51% from postpaid at 2Q09.

• In 2Q09, M1 gained market share helped by strong growth in prepaid. M1’s overall market share inched up from 25.3% in 1Q to 25.6%. M1 added 14,000 monthly prepaid net adds in 2Q as they stepped up promotional offers in the heartlands areas via M1 retailers and chain stores, combined with hefty 50% discounts off IDD rates to several countries. At the same time, SingTel lost overall market share due to monthly net subscriber loss of 2,000 in prepaid, due to deregistrations of inactive SIM users.

• But SingTel gained market share in postpaid, with monthly net adds of 7,000, higher than M1’s 2,000 and StarHub’s 3,000. Interest for iPhone 3G (only sold by SingTel) helped, although postpaid net adds were off the peak of 15,000 in 3Q08 when iPhone 3G was first launched. We expect the stronger trend for SingTel to sustain as the new iPhone 3G S was launched in July. iPhone users also generate an ARPU that is 1.5X that of a normal postpaid subscriber.

• Fall in postpaid ARPU stemmed in 2Q, with improvement in call and data usage. Pospaid ARPU picked up most for StarHub at 3% QoQ, helped by non-voice contribution which rose from 29% of postpaid revenues in 1Q to 30.5%. In terms of data traffic, StarHub enjoyed a 60% surge to 1.6 million GB in 2Q from 1Q09.

• Helped by 3G migration, pure data usage plans revitalises saturated market. In terms of take up for pure data usage plans (including that for smartphones), M1 grew 13% QoQ to 178,000 while SingTel grew 29% QoQ to 226,000. These represented 20% and 15% of their respectively postpaid base (StarHub does not disclose this measure.) Four years after the launch of 3G services, Singapore operators have migrated 78% to 84% of their postpaid subscribers to the 3G networks. 3G subscribers totalled 2.7 million in 2Q09.

• 1H 2009 mobile service revenues held up well, boosted by QoQ pick up in 2Q revenue. In terms of total mobile service revenues (inclusive of IDD), StarHub saw a 1% YoY fall in 1H 2009, while M1’s was flat and SingTel’s rose an estimated 6%.

• Our preferred stock is M1 for 17% upside to fair value of S$2.03/share. For its pure play mobile operations, M1 enjoys EBITDA margins of 45% over the forecast period, and is a pure beneficiary of the next phase of growth in mobile broadband. At this juncture, StarHub and SingTel are trading close to their fair values of S$2.28/share and S$3.05/share respectively and we maintain HOLD ratings on these.

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