Review of 1Q12

1Q12 telco results reflected the usual seasonal weakness. Key features were: 1)subdued service revenue;2) muted sector margins;and 3)a rebound in ARPUs forfixed broadband.SingTel continued to gain market share in broadband and pay TV, at StarHub’s expense.

All three telcos’ results met our forecasts. Maintain Neutral on the sector as we see no major catalysts. StarHub (Outperform) is our top pick as its net debt/EBITDA is at a multi-year low, ripe for the payment of higher dividends.

SingTel continues to gain share

While its share of mobile revenue peaked in 4Q12, SingTel gained share in fixed broadband and pay TV. This reflects its strategy of garnering more customers with the view of selling them more services in future.

Gearing fell

Gearing improved for all three, with StarHub’s falling to 0.49x, the lowest since 2Q06. Although StarHub has acknowledged that its gearing is very low, it plans to maintain its dividend payout of 20cts in 2012 and does not intend to go for capital management. We believe StarHub is over-conservative and should loosen up its dividend purse strings

Service revenue dipped on seasonality

Overall performances were subdued because of seasonality. Industry revenue dipped 1.3% qoq (but rose 3.8% yoy), due to seasonality and lower equipment sales at StarHub and M1. SingTel’s and StarHub’s service revenue weakened qoq while M1’s grew slightly, thanks to subscriber growth.

Stable and muted guidance

SingTel expects revenue to grow by low single digits with margins to ease. Its capex guidance does not reflect the cost of 4G spectrum in Australia which will be auctioned at end-2012.

StarHub has kept to its 2012 guidance of low-single-digit revenue growth and flat EBITDA margins. To our disappointment, it has maintained its DPS, which we think should be raised.

M1 sounded more positive, expecting its momentum in 1Q to continue through the year, mainly led by mobile data and fixed services.

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