TELCOs – OCBC

4QCY11 REVIEW – OVERWEIGHT

•Mobile business still resilient

•Stable 2012 outlook

•Defensive earnings, attractive yields

Decent 4CY11 showing from M1, StarHub

Both M1 and StarHub both met our forecasts at the recent 4QCY11 results, although SingTel slightly disappointed due to its volatile Associates contribution. StarHub declared a quarterly dividend of S$0.05/share, while M1 declared a final dividend of S$0.079/share.

Review of Singapore mobile operations

SingTel continues to dominate with a ~47% post-paid market share, followed by StarHub with ~28% and M1 ~26%. Overall, the post-paid subscriber base grew by 62k QoQ to 4029k, with the bulk coming from SingTel (+44k). And due to limited availability of iPhone 4S handsets, we note that all the three telcos saw increased monthly churn, with M1 having highest (1.4%). Both SingTel and StarHub recorded modest improvements in monthly ARPUs while M1 saw a slight decline. Meanwhile, comments from all the three telcos suggest that a revamp of the generous data package currently for smartphones is likely when they launch LTE later this year.

Stable 2012 outlook

Going forward, all the three telcos expect their Singapore operations to remain stable or show modest growth, buoyed by continued customer additions and increasing mobile data usage. But with more smartphone users likely to use data-based means to communicate, we expect EBITDA margins to remain flat or even trend slightly lower. Nevertheless, the telcos have kept their dividend payout guidance, thus keeping their yields attractive.

Maintain OVERWEIGHT

The telco shares have underperformed the broader market YTD, whereas the STI has surged some 12.6%. But with markets likely to remain volatile, we believe that the telcos’ defensive earnings and attractive yields offer a safe harbour for the less risk-adverse investors. Maintain OVERWEIGHT.