Month: June 2011
SingTel – BT
Optus reaches A$800m pact with NBN Co
Switch to Australia’s upcoming high-speed fibre-optic network
SINGAPORE Telecommunications unit Optus has reached an A$800 million (S$1.1 billion) pact with the Australian authorities to phase out its current Internet infrastructure and switch over to the country’s upcoming high-speed fibre-optic network.
The agreement with state-owned National Broadband Network Company (NBN Co) will see Optus progressively move its hybrid fibre coaxial (HFC) customers over to NBN Co’s new digital superhighway from 2014.
Optus will receive the A$800 million payment in tranches as its customers make the switch, Optus said in a statement yesterday. Optus based its estimate of the total value ‘on a post tax net present value basis’.
NBN Co has been appointed by the Australian government to equip the entire country with ultra-fast broadband connections.
Under its NBN plan, 93 per cent of Australian homes will be wired up with new fibre-optic links, while the remaining 7 per cent is to be connected wirelessly.
According to the Optus statement, the migration over to the NBN is expected to take up to four years.
Optus will continue to offer broadband services via its HFC infrastructure – which relies on a combination of fibre-optics and slower copper wiring to provide broadband and pay-TV access – until the new network is completed and all its subscribers have been migrated.
The move affects only the firm’s fixed-line residential and small business customers.
In tandem with the migration, it will gradually decommission parts of the HFC network that are not used to support its mobile services and enterprise clients, the operator added.
‘This agreement represents a fair deal for Optus. We intend to use the NBN to turbo-charge competition and to deliver the full potential of a 21st century digital life to customers,’ said Optus chief Paul O’Sullivan.
An A$11 billion agreement was also struck between NBN Co and Optus rival Telstra.
Under the contract, the country’s largest fixed-line operator will grant NBN Co access to its copper-based infrastructure for at least 35 years to help with the deployment of its new digital highway.
In addition, Telstra has agreed to progressively switch off its copper-based network and move its services over to the NBN.
SingTel – BT
Optus reaches A$800m pact with NBN Co
Switch to Australia’s upcoming high-speed fibre-optic network
SINGAPORE Telecommunications unit Optus has reached an A$800 million (S$1.1 billion) pact with the Australian authorities to phase out its current Internet infrastructure and switch over to the country’s upcoming high-speed fibre-optic network.
The agreement with state-owned National Broadband Network Company (NBN Co) will see Optus progressively move its hybrid fibre coaxial (HFC) customers over to NBN Co’s new digital superhighway from 2014.
Optus will receive the A$800 million payment in tranches as its customers make the switch, Optus said in a statement yesterday. Optus based its estimate of the total value ‘on a post tax net present value basis’.
NBN Co has been appointed by the Australian government to equip the entire country with ultra-fast broadband connections.
Under its NBN plan, 93 per cent of Australian homes will be wired up with new fibre-optic links, while the remaining 7 per cent is to be connected wirelessly.
According to the Optus statement, the migration over to the NBN is expected to take up to four years.
Optus will continue to offer broadband services via its HFC infrastructure – which relies on a combination of fibre-optics and slower copper wiring to provide broadband and pay-TV access – until the new network is completed and all its subscribers have been migrated.
The move affects only the firm’s fixed-line residential and small business customers.
In tandem with the migration, it will gradually decommission parts of the HFC network that are not used to support its mobile services and enterprise clients, the operator added.
‘This agreement represents a fair deal for Optus. We intend to use the NBN to turbo-charge competition and to deliver the full potential of a 21st century digital life to customers,’ said Optus chief Paul O’Sullivan.
An A$11 billion agreement was also struck between NBN Co and Optus rival Telstra.
Under the contract, the country’s largest fixed-line operator will grant NBN Co access to its copper-based infrastructure for at least 35 years to help with the deployment of its new digital highway.
In addition, Telstra has agreed to progressively switch off its copper-based network and move its services over to the NBN.
ComfortDelgro – Phillip
Buying in at trough valuations
•Current valuation for the stock overly pessimistic
•Defensive stock for uncertain times
•Trading at discount to closest peer
•Forex remains the key risk to our forecasts
•Maintain Buy with target price of S$2.01
A defensive stock for uncertain times
Being a land transport operator, we opine that ComfortDelGro (CDG) has valuable defensive characteristics against a backdrop of uncertain economic environment. Currently, we see relatively little downside risk to our profit growth estimates of 2% for FY11. In fact, the company’s bus business could even see improved profitability resulting from lower oil prices in a global economic slowdown. Majority of the company’s business are non-discretionary and are fairly resilient against a weakening economy.
Undervalued against closest peer
While SMRT and CDG are not directly comparable due to their varied business exposure, their valuation remains the benchmark to the land transport sector on the SGX. CDG currently trades at a discount to its closest peer, SMRT, when compared using the P/E and P/B multiples. Even with our conservative payout ratio assumption of 55% for CDG, the stock offers a fairly similar dividend yield of 4.5% with SMRT.
Key risks lies in forex
With its global exposure, the key risk for CDG lies with potentially lower earnings from weaker forex translation. We estimate that CDG has the highest forex operating profit exposure to AUD (c.20%), GBP (c.13%) & RMB (c.11%) and would be negatively impacted by a depreciation of these currencies against the SGD.
Trading at only 12X T12M EPS
CDG’s share price continues to drift lower in line with the weak market sentiments. We view current market valuations of merely 12X T12M EPS as overly pessimistic, considering the historical +/- 1S.D. P/E range of 13.5 to 16.6X. Even during the GFC, CDG traded below current valuations for less than a fortnight in Oct-Nov 2008.
Valuation. We used a blended valuation model of DCF (COE: 8.2%, terminal g: 1%) and P/E (17X FY11e PATMI) to arrive at our target price of S$2.01. CDG could potentially return 52.1% after incorporating our forecasted dividends of 6.1¢ over the next 12months. Hence, we maintain our Buy call on CDG.
ComfortDelgro – Phillip
Buying in at trough valuations
•Current valuation for the stock overly pessimistic
•Defensive stock for uncertain times
•Trading at discount to closest peer
•Forex remains the key risk to our forecasts
•Maintain Buy with target price of S$2.01
A defensive stock for uncertain times
Being a land transport operator, we opine that ComfortDelGro (CDG) has valuable defensive characteristics against a backdrop of uncertain economic environment. Currently, we see relatively little downside risk to our profit growth estimates of 2% for FY11. In fact, the company’s bus business could even see improved profitability resulting from lower oil prices in a global economic slowdown. Majority of the company’s business are non-discretionary and are fairly resilient against a weakening economy.
Undervalued against closest peer
While SMRT and CDG are not directly comparable due to their varied business exposure, their valuation remains the benchmark to the land transport sector on the SGX. CDG currently trades at a discount to its closest peer, SMRT, when compared using the P/E and P/B multiples. Even with our conservative payout ratio assumption of 55% for CDG, the stock offers a fairly similar dividend yield of 4.5% with SMRT.
Key risks lies in forex
With its global exposure, the key risk for CDG lies with potentially lower earnings from weaker forex translation. We estimate that CDG has the highest forex operating profit exposure to AUD (c.20%), GBP (c.13%) & RMB (c.11%) and would be negatively impacted by a depreciation of these currencies against the SGD.
Trading at only 12X T12M EPS
CDG’s share price continues to drift lower in line with the weak market sentiments. We view current market valuations of merely 12X T12M EPS as overly pessimistic, considering the historical +/- 1S.D. P/E range of 13.5 to 16.6X. Even during the GFC, CDG traded below current valuations for less than a fortnight in Oct-Nov 2008.
Valuation. We used a blended valuation model of DCF (COE: 8.2%, terminal g: 1%) and P/E (17X FY11e PATMI) to arrive at our target price of S$2.01. CDG could potentially return 52.1% after incorporating our forecasted dividends of 6.1¢ over the next 12months. Hence, we maintain our Buy call on CDG.
M1 – CIMB
Launch of LTE
“Soft launch” of LTE
M1’s “soft launch” of LTE is not expected to have much impact on either its revenue or costs given the limited coverage and devices on offer. Moreover, the cost of the dongles is not too hefty at this point. We view this launch more as a publicity campaign to drum up support as coverage is widened and more devices are available as M1 typically likes to be the first to launch new services. There should not be any issue over spectrum as it, together with StarHub, has the highest amount of 1800 MHz spectrum. This should be sufficient for M1 to cope with any upsurge in data traffic. We make no changes to our earnings forecasts, NEUTRAL rating or DCF-based target price of S$2.63 (WACC 8.5%). M1 remains our top Singapore telco pick.
The news
M1 has launched its Long Term Evolution (LTE) service to enterprise customers which would operate on the 1800 MHz and 2600 MHz bands with initial theoretical download speeds of 75 Mbps and upload speeds of 37.5 Mbps. By end-2012, download speeds will be upgraded to 150 Mbps and upload speeds to 75 Mbps. The service will only be available to selected parts of the island within the financial district, including Marina Bay, Suntec, Shenton Way and others. Coverage will progressively be expanded to other areas and should be nationwide by 1Q12. The launch will only involve enterprise customers which will be able to access the service via USB modems on existing mobile broadband plans of S$59.40/month. An expanded range of devices including tablets and smartphones will be available later this year.
LTE is a mobile broadband standard widely regarded as a successor to 3G and is on the path to 4G. It is based on all-IP network and promises improvements in speed, network capacity, coverage, operating costs and user experience. The standard currently provides download peak rates of at least 100 Mbps with future developments potentially yielding speeds as fast as 300 Mbps while upload speeds should at least be 50 Mbps.
Comments
More of a soft launch. We view the announcement as more of a soft launch as it is only targeted at enterprise customers, LTE coverage is fairly limited and more devices will only be expected in the later part of the year (expected sometime in 3Q at the earliest). Nationwide coverage is only expected in 1Q12. We believe M1 is trying to drum up publicity ahead of a wider launch as it likes to be the first to launch services, having done so with HSDPA in Dec 06 and NGNBN in Sep 10.
Not much impact on revenue and costs. We do not expect major revenue contributions from the service as coverage and devices remain limited. Moreover, M1 has protected its ARPU at this stage by charging S$59.40/month, which is the equivalent pricing for its fastest mobile broadband plan of 21 Mbps. On the cost front, there is not expected to be a huge impact as take-up will not be that significant and cost per device is not too exorbitant.
Spectrum not an issue. LTE will consume the bulk of M1’s capex spending of S$100m this year, as guided in the past, although no exact quantum has been disclosed. A key prerequisite by IDA for the re-use of 1800 MHz and 2600 MHz is there should no degradation to the quality of the operators’ 2G services. This should not be a problem for M1 as it had purchased an additional 2×5 MHz of 1800 MHz in Mar 11 at a whopping cost of S$21.7m (54x the reserve price) and together with StarHub, has the most 1800 MHz spectrum. This should enable the operators to handle any upsurge in data traffic and any potential network congestion issues.
Valuation and recommendation
We make no adjustments to our earnings forecasts, DCF-based target price of S$2.63 (WACC: 8.5%) and NEUTRAL rating. M1 lacks catalysts though this is balanced by having the most upside from NGNBN and benefits from soaring inbound visitors. It also has the most scope for capital management. M1 remains our top pick in the Singapore telco sector.