TELCOs – CIMB

3Q12 results round-up

Telcos’ 3Q12 results were a mixed bag. StarHub surprised on the upside due to lower traffic costs while SingTel disappointed. The main notables were 1) the deceleration of mobile revenues, 2) acceleration of fibre broadband net adds, and 3) rise in pay TV competition.

We remain Neutral on the sector as we see no major rerating catalysts. StarHub (Outperform) is still our top sector pick as it offers the highest dividend yield among Singapore telcos and upside potential to its dividends due to its strong FCFE and robust balance sheet.

Mixed results

SingTel’s 3Q12 results missed expectations because of the drag from Bharti which overshadowed the anticipated strong showing in Singapore. Overall, SingTel continued to gain market share in all segments: mobile, fixed broadband, and pay TV. StarHub’s 3Q trumped expectations with the help of lower traffic costs but M1’s results undershot due to unexpectedly high subscriber acquisition costs (SAC).

Mobile revenues dipped

Industry mobile revenue growth slowed to 1.1% yoy from 1.5% in 2Q12 and 4.2% in 1Q12. The slowdown came from lower roaming revenue due to less inbound and outbound roaming. M1’s and SingTel’s mobile revenues rose qoq (seasonality) but StarHub (-1.4% qoq) disappointed as it had lowered roaming rates with the Vodafone group. SingTel is still gaining market share, thanks to its aggressive bundling of mobile broadband with fixed broadband. Its revenue share rose 0.5% pts to 51.7% at the expense of StarHub whose share fell 0.5% pts to 32.2%.

Fibre accelerated

3Q fixed broadband revenue accelerated to 8% yoy because of an 11% jump in SingTel’s 3Q revenue. SingTel captured 59% of new subscribers in 3Q, similar to 60% in 2Q. The telco now has 58% fibre broadband market share.

Pay TV race heats up

SingTel’s mioTV notched up 4.7% qoq growth in revenue and raised its market share by 2% pts to 24%, driven by a combination of higher ARPU and subscribers. With a new line-up of >130 channels, SingTel has substantially narrowed the gap with StarHub’s 157 channels, eroding the latter’s differentiation and dominance.

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