Month: February 2010
StarHub – Nomura
A quarter less-encouraging
• Results below expectation
4Q09 NPAT declined 15% y-y to S$74mn. Mobile, pay TV, fixed network recorded 2-3% revenue growth; broadband revenue declined 8% y-y. Equipment revenue jumped 30% y-y due to the iPhone launch. Margin decline was largely on account of higher equipment costs related to the promotional period and iPhone launch during the quarter. Sequentially, segmental margins were weak with cellular at 32.6%, cable & broadband at 20% and fixed network at 35.9%.
• An expensive growth for the quarter
Mobile net-adds were almost sequentially flat at 34k. However, 16k postpaid net-adds lagged M1’s 19k. Driven by postpaid segment, blended ARPU improved by 1% q-q to S$46. However, mobile churn continued to remain high due to what StarHub described as SingTel’s “aggressive promotion” ahead of StarHub’s iPhone launch. Postpaid SAC reached another high of S$106, a 43% q-q increase. Pay TV saw 4k net-adds, consistent with prior quarters. Broadband net-adds were strong at 8k, but ARPU declined another 2% q-q to S$49.
• Challenges ahead
Management reaffirmed its 20c dividend guidance for FY10 despite 14% capex/sales, which is positive and will keep its yield appeal of ~9%. However, the concern remains on market share risks from NBN rollout and the loss of BPL on its hubbing strategy. Both domestic peers are aggressive and now with the rising push for smart-phones, margins for all carriers could be at risk. We maintain REDUCE with a revised S$1.78 price target (from S$1.82) and recommend switching into SingTel (ST SP; BUY; S$2.98) and M1 (M1 SP; BUY, S$2.03) in
the domestic context.
SingTel – CIMB
3QFY10 results preview
A stronger quarter
Bolstered by Telkomsel and A$; but maintain Underperform. We do not expect any surprises from SingTel’s 3QFY10 results, which are scheduled for release on 9 Feb. Core net profit should grow 1-4% qoq on higher contributions from Telkomsel and a stronger A$, despite seasonally higher subscriber acquisition costs (SAC) in Singapore and Australia, and weaker contributions from Bharti due to stiff competition in India. Core net profit should be 14-18% higher yoy because of a low base a year ago as regional currencies plunged. We maintain UNDERPERFORM on SingTel, with an intact sum-of-the-parts target price of S$3.30. We see de-rating catalysts from stiff competition and a likely heated auction for 3G spectrum in India, high content costs in Singapore and potentially rising competition in Australia.
The details
We expect SingTel’s 3QFY10 core net profit to be S$960m-990m, up 1-4% qoq and 14-18% yoy due to higher contributions from Telkomsel and a stronger A$. This is consistent with consensus expectations of S$970m. The qoq strength would defy seasonally higher subscriber acquisition costs in Singapore and Australia, and weaker contributions from Bharti. The strong yoy growth would reflect a low base due to a plunge in the A$ and rupiah. Results are scheduled for release on 9 Feb.
Seasonally higher SACs. We expect SingTel Singapore and Optus’s EBITDA margins to remain depressed by higher SACs from year-end festivities. M1’s 4Q09 EBITDA margins shed 3% pts qoq respectively. SingTel’s 2QFY10 margins were weighed down by subsidies for the iPhone 3GS. SingTel Singapore and Optus should contribute an estimated 29% and 22% respectively to group FY10 PBT.
Further weakness from Bharti; Telkomsel to improve. The performance of India’s largest cellco, which contributes about 20% to group PBT, was weighed down again by tough competition. Core net profit plunged 14% qoq and 13% yoy and will drag down SingTel’s overall results. The impact would be partially blunted by SingTel’s higher stake in Bharti during the quarter from 30.4% to 32%. However, we anticipate a stronger performance from Telkomsel on the back of easing competition in Indonesia and higher effective tariffs.
Currencies in SingTel’s favour. Regional currencies continued their march north, favouring SingTel. The A$ and rupiah strengthened 5% qoq and 2% respectively against the S$, while the Indian rupee weakened 2% during the quarter.
Issues to watch out for. During its results conference call, we will look forward to greater clarity on the impact of the cost of broadcasting the Barclays Premier League exclusively on SingTel, plans (if any) to launch its own OpCo under the Next Generation National Broadband Network (NGNBN), and its rumoured plans to list Optus. We will also be watching for further signs of competition in the residential and commercial broadband/data space ahead of the launch of NGNBN in Singapore.
Valuation and recommendation
We reiterate our UNDERPERFORM rating on SingTel, with an unchanged sum-of-theparts target price of S$3.30. We see de-rating catalysts from intense competition in India, higher content costs in Singapore and a likely escalation in competition in Australia. The delay in India’s 3G auction process from February to August-September is a short-term relief but remains an issue.
SPH – CS
Across-the-board double-digit rise in ad demand
● According to the CS Page Monitor, newspaper ad demand accelerated further in 2Q FY10E.
● Estimated total classified volume jumped 12% YoY in the first two months of 2Q FY10 – a big improvement from the reported 6% decline in 1Q classified ad revenue. The strong showing is attributable to the 47% YoY surge in job ad volume during the period. While partly due to seasonal effects, the strong job ad demand is in line with the healthy pick-up in the Singapore economy.
● In addition, our page count indicates that display ad volume improved 10% so far in 2Q FY10, versus the reported +2% YoY growth in 1Q FY10 display ad revenues.
● We have raised our earnings forecast to reflect the sharp pick-up in ad demand and expect further consensus EPS upgrades – our FY10 earnings forecast is now 7% above street expectations.
● The stock continues to trade at a substantial P/E discount to the market. Our new target price of S$4.67 represents 24% potential upside from here. We maintain our OUTPERFORM rating.
SingTel – AmFraser
Optus and Telkomsel to boost 3QFY10 results
• SingTel will report 3QFY10 results on 9 February. We expect a hefty boost to earnings from effects of forex movements. Off a low base in 3QFY09 – when all its overseas contributions were hit by adverse movements in exchange rates – we expect SingTel to report strong YoY growth of at least 18% (i.e. S$940mil net profit) for 3QFY10.
• On the upside, strength of the Australian dollar (A$) and Indonesian Rupiah (IDR) against the Singapore dollar (S$) bodes well for contributions from wholly-owned Optus in Australia and 35%-owned Telkomsel in Indonesia. YoY, the A$ surged 27% and IDR appreciated 7%, on average for October-December 2009.
• In addition, contributions from Telkomsel will be on back of significant turnaround in earnings, as 3QFY09 was an extreme low point due to intense price wars, which has since abated.
• In 3QFY09, Telkomsel accounted for 13% of SingTel’s earnings, Optus contributed a fifth, while operations in Singapore made up 37%.
• On average, the S$ strengthened about 2%-3% YoY against the Indian Rupee (INR), Thai Baht (THB) and Philippine Pesos (PhP). Adverse impact will be felt most from Bharti’s contribution. In 3QFY09, Bharti accounted for a hefty 21% of SingTel’s earnings.
• Already, Bharti’s earnings growth has whittled to a mere 2% for 3QFY10 (reported 22 January) with competition heating up in India – a far cry from 20%-30% growth enjoyed in the past. A hike in SingTel’s holdings from 30.43% to 31.95% from November 2009 represents about 0.5% boost for 3QFY10.
• QoQ, we expect SingTel’s performance to be lacklustre over a high base in 2QFY10. Benefits from forex movements will be less felt as the A$ appreciated a moderate 6% QoQ with the IDR at a mere 2% – with marginal downside bias from INR, THB and PhP rates.
• SingTel’s third-tier telco associates – PBTL in Bangladesh and Warid Telecom in Pakistan – which are still in the red, will see losses dragged further by adverse forex movements. The S$ rose 7% and 12% against Bangladeshi Dhaka (BDT) and Pakistani Rupee (PKR) YoY, respectively. QoQ, S$ rose 3%-4% against these currencies.
• Maintain HOLD rating with fair value at S$3.05/share.
SingPost – OCBC
Achieves better-than-expected results
Results above ours and street’s expectations. Singapore Post (SingPost) reported a 12.7% YoY (+7.2% QoQ) rise in revenue to S$139.6m and a 20.6% YoY (+8.9% QoQ) growth in net profit to S$44.1m in 3QFY10. Results were above ours and the street’s expectations as 9M10 net profit accounted for 81% of our full-year estimates and 84% of Bloomberg’s mean earnings estimate. Underlying net profit (PATMI excl. one-off items) rose 6.3% YoY to S$38.9m if we strip out S$2.9m amortization of deferred gain on intellectual property rights (recall acquisition of Postea in May 09), S$2.0m from the Jobs Credit Scheme and S$0.3m from the property tax rebate (Singapore Budget).
Mail and logistics boosted revenue. A rebound in international mail revenue contributed to the upside surprise, rising 23.7% QoQ after last quarter’s 3.4% decline. Quantium Solutions also contributed to higher logistics revenue which rose 7.9% QoQ. We understand that the international mail segment recovered with better business conditions, and also because SingPost secured new customers last quarter, which is a noteworthy fact. Management, however, is not popping the champagne yet as this segment may continue to experience pricing pressure.
Initiatives pay off. Though rental and property-related income grew 22% YoY, the extent of increase is actually much smaller on a sequential basis (+1% QoQ). Higher rental income from the Singapore Post Centre and the leasing of space at repurposed post office buildings boosted on-year income, which would have suffered if such initiatives did not take place, as we understand that average retail rental has fallen to about S$8/sq ft compared to S$15/sq ft during the peak around 2H08.
Growing its reach. SingPost has reiterated that it wants to expand its regional presence. The group currently covers 11 cities in India and is intent on growing its business there. Management also revealed that another area which may present opportunities is the Philippines. Meanwhile, SingPost also aims to grow the logistics, retail and other businesses to reduce its dependence on mail revenue. With the consolidation of Quantium Solutions, we note that the proportion of mail revenue to total sales has fallen from 77% in 4QFY09 to 68% in 3QFY10.
Maintain BUY. SingPost’s operating cash flows remain strong. We have tweaked our estimates to account for the betterthan- expected results, increasing our fair value estimate to S$1.16. With an upside potential of 14.6% and a projected dividend yield of 6.2%, we maintain our BUY rating on SingPost.