Month: November 2007
StarHub – CIMB
Mobile power
• Within expectations; high-quality revenue growth. 3Q07 earnings of S$81m (-0.1% yoy) is about 4% above our estimate and 9% above consensus. As expected, earnings were driven by solid revenue growth (+11.4% yoy). EBITDA margins, which declined to 32% from 34% due to a timing lag between the repricing of sports packages (starting October) and the booking of BPL costs (started in August), are within our expectations. Overall, this was a strong quarter for StarHub. Accordingly, management raised its FY07 revenue guidance to 11% growth from “high single digits”.
• Mobile powered the 11.4% topline growth. While prepaid led growth (+21% yoy) on strong subscriber growth (+29% yoy), postpaid was the star. Postpaid ARPU rose 10% yoy to S$78 as StarHub enjoyed a successful MaxMobile (wireless broadband) launch, captured higher-ARPU subscribers as well as increased IDD and roaming fees during the quarter.
• Our EBITDA margin assumption remains intact. EBITDA margins hit a low this quarter on account of the timing lag in the repricing of higher BPL content cost and as StarHub spent more on acquiring higher-ARPU postpaid subscribers. Our EBITDA margins have accounted for higher customer acquisition costs in 4Q07.
• Key revenue growth catalysts remain: 1) increased roaming from robust regional economies and MaxMobile driving postpaid ARPU; 2) a foreign-worker influx driving prepaid mobile; and 3) strengthened product offering and sportschannel repricing driving cable TV growth. We believe cable TV has the greatest scope to surprise.
• Maintain Outperform; target price nudged up to S$3.66 from S$3.64. Our target, still based on DCF valuation (6.9% WACC; 1% terminal growth rate), has been nudged up after we upgraded our FY07-09 earnings estimates by 1-3% to reflect stronger mobile growth. We continue to believe StarHub offers the best exposure to Singapore’s telco service consumption boom as the leading quadruple-offering operator. It remains our top Singapore telco pick over a 12 month horizon.
StarHub – BT
StarHub Q3 earnings fall 0.2% to $81.3m
Telco suffers first quarterly profit decline since its listing 3 years ago
STARHUB has posted lower net profits of $81.3 million for the third quarter ended Sept 30 – its first quarterly decline since the telco’s listing in October 2004 – amid intense competition and higher content costs for its football channel.
Singapore’s second-largest listed telco, StarHub said net profit fell 0.2 per cent to $81.3 million while earnings per share rose to 4.78 cents from 3.97 cents a year ago.
Revenue grew 11.4 per cent to $513.1 million, from $460.6 million a year ago but cost of sales rose a faster 29 per cent per cent, driving total operating expenses 13.4 per cent higher to $405.4 million.
StarHub chief executive Terry Klontz said the quarter’s higher cost was due to its cable TV business amortisation of costs for the new season of Barclay Premier League programming rights.
But the price increase for the sports package does not kick in until this quarter, and even then for only two months, he said.
The full impact of the higher prices will be felt next year. For the nine months, net profit rose 6.2 per cent to $232 million.
All four businesses reported growth in revenues.
Although StarHub’s Q3 mobile phone business grew its revenue 13.9 per cent to $266.2 million year on year and continues to be the firm’s largest earner, market share has slipped.
StarHub managed to increase its number of mobile phone subscribers by 50,000 to 1.68 million during the quarter but market share slipped to 31.8 per cent from its peak 33.2 per cent a year ago.
Smaller rival Mobile-One, which posted third-quarter results last month, added 58,000 new customers to bring its total customer base to 1.467 million.
As for Singapore Telecommunications, which will report second-quarter results next week, it said in August during its first-quarter presentation that total number of mobile subscribers rose to 1.92 million as it added 124,000 new customers, giving the company a 39 per cent market share, up one percentage point from a year ago.
StarHub spokeswoman Jeannie Ong said the firm does not have a market share target. ‘We are focused on revenue,’ said Ms Ong.
Broadband registered 11.7 per cent Q3 growth to $62 million while Cable TV revenue was up 8.5 per cent to $85.8 million.
Fixed network business rose 3.9 per cent to $73.4 million.
StarHub also revised its 2007 revenue growth guidance upwards to about 11 per cent, from high single digit.
It expects margin on blended earnings before interest, tax, depreciation and amortisation (Ebitda) to remain around 34 per cent.
Full-year cash capital expenditure, as a ratio of operating revenue, is expected to be about 12 per cent, against earlier expectations of not more than 14 per cent.
The company declared a dividend of four cents and confirmed that it will pay a minimum annual cash dividend for the full financial year 2007 of 15.5 cents per ordinary share.
This means a dividend payment of four cents per quarter for the remainder of the year.
SingTel – CIMB
Bharti’s growth momentum continues
Bharti 2QFY08 Results
In line with consensus but above our expectations. Bharti’s (Sing Tel’s 30.5% associate) recorded 1H08 net profit of Rs. 31.2bn (+85%yoy) that was 3% below consensus estimates but 7% above our expectation.
Revenue surged 45%yoy on robust subscriber growth. The India growth story continues with Bharti’s subscriber base growing by 81% yoy and 15% qoq. Bharti cemented its market leadership role by increasing its market share by 180bps yoy to 23.9% as at end Sept 07. Bharti ended 2QFY08 with 48.9m mobile subscribers.
ARPU declined but EBITDA margin expanded. MOUs declined 2% qoq, contributing to lower ARPUs (-6% qoq). This can be linked to the rationalisation of its free minutes/low tariff plans as well as some seasonality factors. These initiatives, combined with economies of scale helped lift EBITDA margins to 42.8% (+140bps qoq, +370bps yoy). Management expects MOU recovery going into Q3 and Q4. However, ARPU should continue to decline as Bharti expands into rural areas but management is focused on making every subscriber profitable.
Spectrum not expected to be growth bottleneck. Management clarified that spectrum constraints are limited to CBD areas but is not an issue for rural/hinterland areas where Bharti is pursuing new subscribers.
Tower demerger initiative is awaiting High Court approval in early November.
Regulatory update. The DoT has accepted TRAI’s recommendations for allowing unlimited service providers in one circle, permitting dual technologies in one circle and adopting and enhancing the subscriber-linked criterion for allocation of additional spectrum. These developments are would increase competitive pressure for GSM players like Bharti. GSM players including Bharti have appealed against these decisions with a Nov 12 date set for the hearing.
Comments
Bharti continues to execute well on all fronts: delivering top-line growth, growing its margins and extending its market leadership despite increased competition. Bharti is comfortably on track to meet consensus FY08 earnings estimate of Rs 64.6bn with scope to surprise on the upside.
Outlook remains bright for Bharti. With penetration rates still below 20%, Bharti clearly has attractive growth opportunities ahead as the undisputed market leader. We believe that concerns regarding increased competition from the potential regulatory change that allows unlimited serviced providers in one circle as well as a more aggressive Vodafone is premature. There are still ample growth opportunities for the major players and Bharti’s excellent track record as the market leader remains intact.
Bharti’s compelling growth prospects is a key reason for our bullish view on SingTel. Bharti is the largest value driver contributing 32% to our SingTel valuation. This should increase as Bharti’s growth outpaces SingTel’s other business units. From the earnings contribution standpoint, Bharti currently contributes 32% of associate income or 17% of SingTel’s earnings.
Valuation and recommendation
Maintain OUTPERFORM with unchanged target price of S$4.54. SingTel remains our top-pick among Singapore telcos over the next 6 months, offering reliable earnings growth as well as highly liquid exposure to fast-growing associates such as Bharti and Telkomsel.