Month: June 2010
SingTel – DB
STel’s Sing/Australia fwd PE looking stretched again
STel fell 2.9% today but is still up 18c (6.3%) over the last month despite the per share value of STel’s listed Associates staying effectively unchanged over the same period. The result of this relative STel out-performance versus its listed Associates has been a re-rating of the Sing/Australia businesses. In fact, the current implied Sing/Au fwd PE at 15.5x, although down on yesterday’s 16.3x, is still close to 2yr highs.
A high Sing/Au PE signals near-term STel price weakness
As previously highlighted, the implied Sing/Au fwd PE is inversely correlated with STel’s subsequent near-term price performance. On the 200 specific days over the last 5yrs when the estimated Sing/Au fwd PE exceeded 15.5x, STel’s price fell over the next three months on 89% of such times with an average 11% decline. And since it is difficult to imagine the Associates being significantly re-rated over the near-term (which would de-rate Sing/Au), we expect STel’s share price to be near-term pressured.
STel has been range-bound around S$2.90-3.20 for more than a year. On 26 June 09, it closed at S$3.01 with the Associates valued at S$1.53/share. Today STel is at S$3.04 but the estimated value of the Associates is now S$1.26. This divergence seems a bit odd. In fact, on current FX and prices, the listed Associates are worth S$0.89/share and the Telkomsel stake is estimated at S$0.37/share. And if we apply the average historic PE multiple to our Sing/Au estimate, then the implied value of those business would be S$1.54/share – giving a total theoretical price of S$2.80.
In summary, we expect STel to stay range-bound. But given the current Sing/Au fwd PE, near-term risks are skewed to the downside and it is possible the lower end of the range could be reset at or below S$2.80 over the near-term.
SPAusNet – BT
MELBOURNE – Victims of Australia's deadly 2009 firestorm have launched legal action against a Singapore power firm alleging poorly-maintained electrical wires sparked the blaze, reports said on Saturday.
Lawyers representing almost 600 people lodged a class action in Victoria's Supreme Court against Singapore Power for allegedly failing to maintain an ageing line, which fell and started the Feb 7 fire at Kilmore East.
It was the deadliest blaze of 'Black Saturday', Australia's worst natural disaster, claiming 119 of the 173 lives lost. Legal firm Maurice Blackburn said the suit could be worth hundreds of millions of dollars.
'We have heard strong evidence at the Royal Commission (into the fires) that Singapore Power could have taken a number of steps to prevent the devastating Kilmore East-Kinglake bushfire,' firm chairman Bernard Murphy told The Age newspaper.
'Electricity distribution companies are commercial enterprises that have a responsibility to ensure that public safety is not compromised simply in order to keep costs down. Singapore Power's failures have had very tragic consequences.'
The action currently has 598 plaintiffs but could grow to as many as 1,300, including people who lost family members in the fire, suffered physical injuries and lost property, or had ongoing psychological damage, The Age said.
It will allege Singapore Power failed to fit a A$10 (US$8.70) anti-vibration device to guard against metal fatigue and that the circuit-breaker system was not adequate for a dry, windy, fire-prone area.
The 1.1-kilometre single-strand line, one of the longest in Victoria, was only checked every five years and rust and wire deterioration could not be detected by ground crews, the case will also claim.
Unusually for an Australian civil case, Maurice Blackburn has asked that it be decided by a jury instead of a judge.
The Black Saturday fires rushed into small communities with little warning, killing 173 residents as they sheltered in their homes, or fled in cars. Entire towns were razed, reducing more than 2,000 homes to ash. — AFP
Telecom – OCBC
Likely muted World Cup demand
Likely muted World Cup demand. The month-long 2010 World Cup campaign kicked off in South Africa last Friday. As a recap, both SingTel and StarHub have managed to secure the broadcast rights for all 64 matches of the month-long 2010 World Cup event in South Africa; this was done via two separate non-exclusive contracts after their earlier joint bids were repeatedly rejected by FIFA. However, various media reports suggest that the take-up rate for the subscription packages could be muted. For example, a quick poll done by The StraitsTimes just a day before the kick off found that only 37 among the 625 HDB households (6% take-up rate) it surveyed had signed up for the package – the high pricing of the packages was given as one of the stumbling blocks.
Pricing may be the sticking point for home viewers. As mentioned previously in our May report, we believed that the higher pricing of S$88 before GST (nearly 4x more expensive than the 2006 World Cup) would be a sticking point for home viewers. According to data compiled by Bloomberg, the charges make Singapore one of the most expensive places to watch the World Cup. We noted that the packages were also higher than our back-of-the-envelope calculation of around S$40.Conversely, a dip in the take-up from home viewers could see better response from the business segment, as F&B establishments use the "live" telecasts to attract viewers who are not subscribing for the event. Assuming that the telcos paid a total of S$20m for the rights and that the average subscription price is S$70/subscriber, the telcos would probably need to sell 280k packages to break even (before advertising revenue).
WC costs felt in 2Q and 3Q. In any case, we expect to see higher content costs being booked in the second and third quarters, leading to slightly depressed margins for both SingTel and StarHub. However, if the take-up rate comes in worst than expected, we note that there is a risk of seeing further margin compression. On the other hand, we see M1 Ltd emerging as a better bet (at least in the near term) as it is not going to face this risk of a World Cup disappointment in the coming two quarters. That said, we continue to like the telcos for their defensive earnings and high dividend yields, especially in the increasingly volatile market. Maintain OVERWEIGHT.
SingTel – BT
iTunes off, SingTel turns up the music
Singapore Telecommunications aims to fill the local absence of Apple’s wildly popular iTunes music store with a string of new tie-ups that could more than double the repertoire of its free song download service.
‘This year, you will see us announcing partnerships with other music labels,’ said Yuan Kuan Moon, SingTel’s consumer chief and CEO of its mobile division.
‘We are in the final closing stage of negotiations,’ he told BT in an interview last week.
The upcoming deals, which could include alliances with music giants Warner, Sony Music and even smaller independent labels, will greatly expand the library of songs that are offered under Amped. This is the digital music store the operator opened to much fanfare in June last year.
Amped currently serves up a musical buffet of nearly 500,000 songs from Universal Music artistes such as Black Eyed Peas and Lady Gaga.
Consumers who sign up for selected price plans are given the additional perk of being able to download these tracks to their phones for free.
‘We have 150,000 customers on Amped already. That is an extremely good response given it’s only been one year (since the launch),’ Mr Yuan said.
‘A feedback we got is that we have only half a million songs. Once we have all these record labels on board, this (Amped) will become your de facto music player,’ he added.
SingTel Amped is the country’s third legitimate music download service, but it is the only one to support handsets from different manufacturers.
Only Nokia phone users are allowed access to its Comes With Music offering and the same applies to Sony Ericsson’s PlayNow Plus music service.
Within Asia, Apple’s popular iTunes Music store is open for business only in Australia and Japan, as piracy concerns continue to keep its doors shut to consumers in other parts of the region.
SingTel initially tried to offer Amped on as many phones as it could, but it has since changed tack to bundle the service with selected smart phones.
‘The user experience wasn’t as good (on certain phones),’ Mr Yuan explained.
Besides music, SingTel is looking to dial into the booming market for mobile games to boost its cellular revenue.
However, instead of developing its own titles, the operator is trying to work with application store owners such as Nokia and Google on integrated billing arrangements, he revealed.
This means that customer downloads can be automatically charged to a consumer’s phone bill, freeing the handset makers from the burden of maintaining their own payment systems.
‘We want to make sure we tap ourselves into big ecosystems,’ Mr Yuan stressed.
Despite Singapore’s sky-high mobile penetration rate of nearly 140 per cent, SingTel still added 25,000 postpaid cellular subscribers to bring its tally to 1.62 million at the end of March.
With the growing use of mobile broadband and the arrival of new gadgets such as the Apple iPad, Mr Yuan is confident that the firm’s cellular base will continue to swell.
‘There will still be growth because we are not looking at pure population penetration. We are looking at a single user with multiple devices,’ he said.
SingTel – BT
Telkomsel tower deal still being worked out: SingTel
THE US$1.2 billion deal to sell its stake in some 9,000 telecommunications towers in Indonesia to local operator PT Telekomunikasi (Telkom) is still being worked out and it’s too early to comment on the sale, says Singapore Telecommunications.
‘As shareholders of Telkomsel, both Telkom and SingTel conduct regular reviews of Telkomsel’s business operations and its future directions. One of the on-going discussions focuses on Telkomsel’s tower assets. It is too premature to comment on the subject,’ a SingTel spokesperson said.
The company was responding to Telkom’s comments in a Reuters report that it was looking to close the deal by the end of this year.
In April, Indonesia’s largest telco appointed the Australian Macquarie Group as its adviser to the deal. Earlier this year, the operator also said that it would borrow around US$400 million to finance the transaction.
The towers in question belong to SingTel’s Indonesian associate Telkomsel. Telkom has a 65 per cent stake in Telkomsel and the Singaporean operator holds the remaining 35 per cent interest.
Local authorities frown upon foreign ownership of critical telecommunications infrastructure. As a result of SingTel’s stake in Telkomsel, Telkom is looking to transfer the ownership of these towers to a wholly owned subsidiary called PT Dayamitra Telekomunikasi, or Mitratel.
In a separate announcement, SingTel said that its Australia subsidiary Optus’ HK$1 billion (S$180 million), 10-year note issue will carry an annual coupon of 3.825 per cent per annum and mature on June 10, 2020.
The notes, distributed to institutional investors, come under Optus’ two billion euro (S$3.4 billion) Medium Term Note programme announced in July 2009.