TELCOs – CIMB

Ringing up Mr Data

We upgrade Singapore’s telco sector to Neutral from Underweight following the 1Q13 results season on: 1) the surging adoption of tiered mobile plans; and 2) after upgrading SingTel to Neutral from Underperform on lower competition issues in Australia.

Nevertheless, competition in fixed broadband and pay TV remains a concern, especially for StarHub. We are also Neutral on the sector as valuations are still not compelling despite the recent de-rating. M1 (Outperform) is our top pick as it should be the biggest beneficiary of the adoption of tiered data plans and is also developing a new revenue stream in fixed broadband.

1Q13 results mainly in line

M1 and StarHub matched our estimates. As expected, StarHub declared a 5 Sct DPS while M1 did not. SingTel bucked the trend as its 4QFY3/13 earnings beat consensus and our expectations on the back of surprises from AIS, Globe, and Telkomsel. It also declared a 10 Sct DPS, above our expectation of 9 Scts.

Review of operations

Sector mobile revenue grew 2.5% yoy in 1Q13, up from 2.1% in 4Q12 as the shift to tiered data plans improved monetisation.

Pay-TV revenue remained flat from stiff competition. SingTel continued to take market share from StarHub. StarHub is preparing for BPL cross-carriage as ordered by the regulator despite SingTel’s appeal to reverse the order.

Fixed-broadband revenue remained muted, with growth down to 4.8% in 1Q13 from over 8% in the previous two quarters. This was despite rising fibre subscribers and could be blamed on intense competition.

2013 outlook still muted

Capex for the three telcos will be elevated for 2013 and should remain so in 2014, largely on LTE/4G spending. While M1 expects moderate earnings growth this year, SingTel and StarHub are more muted in their 2013 guidance. SingTel expects FY14 EBITDA to grow by low single digits and has raised its payouts to 60-75% from 55-70%. StarHub trimmed its revenue-growth guidance to low single digits from single digits and kept its EBITDA margins at 31%. Both M1 and StarHub have maintained their dividend guidance.

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