TELCOs – CIMB

StarHub connects with Vodafone

Switching partners

A day after M1 disclosed its decision not to renew its 8-year partnership with Vodafone after this year, StarHub announced that it is tying up with Vodafone beginning 1 Jan 12. We are mildly positive as StarHub should benefit from: 1) roaming traffic funnelled by Vodafone to StarHub’s network; 2) preferential rates for StarHub’s users roaming overseas; and 3) more multinational-corporation customers in Singapore for StarHub through Vodafone’s global accounts. While details are scanty, we believe the positives will be partially offset by fees charged by Vodafone for the benefits it brings along, similar to what were imposed on M1. Also, the impact on M1’s earnings from its decision not to renew its partnership could be less than our original estimate of 5-10%, because the loss of revenue may be compensated by the cessation of fees payable to Vodafone. No changes to our earnings estimates or target prices. SingTel remains our top Singapore telco pick, followed by StarHub.

The news

A day after M1 revealed its decision not to renew its 8-year partnership with Vodafone when it ends this year, StarHub announced that it is tying up with Vodafone beginning 1 Jan 12. The partnership will encompass inbound and outbound roaming, as well as providing Vodafone’s enterprise customers with mobile services in Singapore. StarHub said this collaboration would enable it to penetrate the local enterprise mobile market with Vodafone’s enhanced roaming experience.

Comments

Small positive for StarHub. We are mildly positive on this news, based on what we know. StarHub should gain from inbound roamers from Vodafone’s users and Vodafone’s partner networks as well as MNC customers in Singapore that are part of Vodafone’s global accounts. However, the benefits should be partially offset by fees charged by Vodafone for channelling traffic and business to StarHub, akin to those levied on its current partner, M1.

Small negative for M1. We earlier estimated a 5-10% dent on M1’s core net profit from the cessation of its partnership with Vodafone but now gather from M1 that the impact on its earnings could be negligible. We understand that the loss of inbound roaming traffic should be partially compensated by the cessation fees that M1 currently pays to Vodafone.

Valuation and recommendation

No changes to our numbers. We maintain our earnings forecasts and target prices for StarHub and M1 and look forward to more details of the impact on each during the next results season. SingTel (Outperform) is our top telco pick in Singapore, followed by StarHub (Outperform). We maintain our OVERWEIGHT on the sector given the telcos’ resilient earnings and cash flows that support attractive and steady dividends.

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