TELCOs – CIMB

What to expect for 1Q12

We do not expect surprises in the 1Q12 results season. The usual themes are: 1) service revenue to remain muted;2) EBITDA margins to remain flat or up slightly; and 3) data to continue replacing voice.

We remain Neutral on Singapore telcos, maintaining our earnings forecasts and target prices. StarHub remains an Outperform and is our top Singapore/regional telco pick as we expect higher dividend payouts from its under-leveraged balance sheet.

Themes for 1Q12

We generally expect: 1) service revenue to remain muted as more Singaporeans travel out of the country during festive holidays, part of the seasonality; 2) EBITDA margins to improve on the back of lower advertising and marketing expenses and lower smartphone subsidies; and 3) data revenues to continue replacing voice revenues as a result of higher smartphone penetration rates.

Expectation for StarHub

We estimate earnings growth of 5-9% qoq for StarHub on margin improvements as lower subsidies added to lower advertising and marketing expenses during the quarter. Mobile revenues are also expected to rise on higher data take-up from higher smartphone penetration rates. We expect pay-TV revenue to remain stable qoq but increase yoy as StarHub raised its pricing by 4% in Aug 11.

Expectations for M1

We expect core profit to come in at S$37m-40m for 1Q12, with earnings contracting 1% or growing as much as 7% qoq. Revenue is expected to weaken on the back of lower handset sales (iPhone4S was launched in Oct 11) and lower service revenue. Meanwhile, we expect margins to improve from lower advertising and marketing spending and lower iPhone subsidies. M1 is scheduled to release its 1Q12 results on 6 Apr.

We will be previewing SingTel’s results separately.

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