TELCOs – Phillip

Results Season Takeaways

Sector Overview

The Telecommunications Sector under our coverage consists of SingTel, Starhub & M1. Starhub (STH) and M1 are pure plays to the Singapore market, while SingTel (ST) has exposure to the Asia-Pacific region through its regional mobile associates.

• Revenue remains stable q-q
  
• Telcos remain attractive due to high dividend yield
  
• Neutral on Starhub, SingTel, and M1. We prefer Starhub over SingTel and M1
  

Mobile

• Q-Q post-paid net adds similar across three Telcos
  
• Post-paid ARPU mostly flat q-q, Starhub marginally lower
  
• Data monetization key revenue growth driver
  

Pay TV

• SingTel continues to gain market share
  
• Revenue to remain stable and strong
  
• Cost of non-exclusive contents, previously signed on exclusive basis, unlikely to decrease significantly
  

Broadband

• Fibre broadband continues to grow rapidly
  
• SingTel continues to dominate, with market share higher than those in the post-paid mobile segment
  

Others

• Sep – Dec 2012 may see an increase in equipment revenue and cost, due to the launch of popular iPhone 5
  
• 320 MHz of spectrum may be up for auction in 2013
  

Recommendation

We are neutral on the sector, while maintaining that they remain attractive due to their high dividend yield and stable earnings. We prefer Starhub and SingTel over M1 due to their bundled packages, which include Pay TV, being better able to retain customer loyalty. With both having higher operating revenue than M1, while Capital expenditure as a ratio of Total Operating Revenue is similar across all three Telcos, Starhub and SingTel have a higher budget to spend on future enhancements.

We prefer Starhub to SingTel due to its single geographical exposure, compared to the multiple countries that SingTel has a stake in. Starhub is therefore less volatile. Starhub also creates shareholder value, while paying out a higher dividend yield based on current price. Based on current share price, we are Neutral on Starhub, SingTel and M1.