TELECOs – DBSV
Three keys – Android, EPL and Fiber
• Singaporeans are no longer obsessed with iPhone, till the launch of iPhone 5 at least. StarHub’s 2Q12F earnings may beat market expectations on the back of it.
• English Premier League bidding may haunt again, StarHub’s annual S$20m savings could disappear.
• HOLD StarHub for 5.9% yield as we raise TP to S$3.50 expecting 21 Scts DPS versus 20 Scts earlier.
• HOLD SingTel for 5% yield. Key concerns are Bharti’s contribution and startup cost for mobile advertising in Singapore.
Increasing popularity of Android phones is good news for the sector. M1 revealed that 70% of its new post-paid customers in 2Q12 had opted for Android phones. Telcos provide lower handset subsidy on Androids versus iPhones due to the cheaper retail price of Androids. This is likely to benefits SingTel and StarHub. In mid-August, we expect StarHub to beat market expectations by 12 % and report 2Q12 earnings of S$95m (23% y-o-y and 8% q-o-q). We like to highlight that the upcoming launch of iPhone5 (rumored to be in September end) could reverse the trend just like how the iPhone 4S did last year.
Two possible scenarios for English Premier League (EPL) rights in September 2012. Neither of the players has an incentive to bid higher for exclusive rights, as consumers can access the content through cross-carriage arrangements anyway. There are two possibilities depending on what is acceptable to the Premier League. (i) Both players place a common joint-bid; (ii) Each player bids on a non-exclusive basis so that cross-carriage does not apply. In either case, each player has to incur some cost of owning the content rights. We estimate that StarHub has benefitted at least S$20m annually due to the absence of cost for EPL rights and these benefits may disappear going forward. We don’t see much impact on SingTel due to the high cost-base of EPL rights.
Higher adoption of fiber broadband. The regulator has increased the weekly porting limit for fiber connections by 30% to 3100 from August 2012 onwards. 200 installations out of the quota will be for commercial buildings, expediting fiber adoption in the corporate space. This will reduce waiting time for fiber connections and benefit retail service providers (RSPs). RSPs have a chance to steal small and medium enterprise (SME) customers from SingTel now.