TELCOs – CIMB

Previewing 4Q12

StarHub’s FY12 earnings could surprise positively while that of M1 is likely to be in line. More importantly, we expect StarHub to raise its quarterly dividend from 5 Scts to 6 Scts given its multi-year low gearing and lower capex in FY13.

Both telcos should see 4Q12 net profit weaken qoq due to seasonally-higher subscriber acquisition costs but that of StarHub should only be a little lower due to better bulk discount of devices. No change to our estimates for M1 and StarHub and our Neutral stand on the sector as it lacks rerating catalysts. StarHub (Outperform) is our top pick given a higher dividend. We will preview SingTel separately.

Higher SAC in 4Q12

Key themes for the 4Q12 results are: 1) competition in 4Q12 was fairly rational and did not stray beyond the bounds of seasonality, based on our industry checks. However, the hotspot of competition remained fixed broadband, 2) EBITDA margins are expected to come under pressure owing to higher subscriber acquisition costs (SACs) in relation to festive promotions and the full impact of subsidies for the iPhone 5, and 3) revenue is estimated to be higher given data monetisation and seasonality.

4Q12 expectations for M1

We expect M1’s FY12 core net profit to be line with both our and consensus estimates. However, a big swing factor is the composition of iPhones vs. non-iPhone devices as accounting for the former is based on fair value and has little impact on quarterly earnings whereas the latter does. 4Q12 service revenue should have improved qoq due to revenue contribution from subs growth in 3Q and revision of data prices. M1 is expected to release results on 21 Jan.

StarHub could surprise positively

StarHub’s FY12 core net profit could surprise the market by 4% but come within our forecast. The telco hinted that its EBITDA margin could exceed its guidance of 30% due to lower SACs as it has secured better bulk pricing for handsets and other devices. More importantly, we expect StarHub to raise its quarterly dividends from 5 Scts to 6 Scts. The company will release its results on 7 Feb.

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