Month: May 2012
TELCOs – Phillip
Results Season Takeaways
Sector Overview
The Telecommunications Sector under our coverage consists of SingTel, Starhub & M1. Starhub (STH) and M1 are pure plays to the Singapore market, while SingTel (ST) has exposure to the Asia-Pacific region through its regional mobile associates.
• Positive earnings for SingTel & Starhub
• Starhub is still the highest yielding Telco counter
• SingTel dominates fibre market share
• Neutral on SingTel & Starhub, Reduce on M1
Earnings Surprise?
Starhub’s results beat our expectations for the second consecutive quarter with profit increase of 28% y-y. While revenue increased by merely 6%, better cost control due to lower marketing and promotion expenses improved Starhub’s profitability. M1’s net income declined by 5% y-y as operating expenses outpaced the relatively stagnant top line growth. Adjusting for the effects of a one off gain from an exceptional S$270mn tax credit received, SingTel’s results were in line.
Operational Trends
Starhub & M1 reported stagnant Postpaid Mobile subscriber base in the quarter. SingTel added 30k subscribers, but reported a dip in Postpaid ARPU in the quarter. For the PayTV market, SingTel added 15k subscribers and increased its market share to c.40%. By our estimate, SingTel dominated the fibre broadband space with a market share of 60%, with M1 ranking second with a 23% share. While Starhub does not disclose its fibre base, the company probably has a lower fibre subscriber count as it could still offer high speed MaxOnline plans on its cable network.
Recommendation
Fundamentally, we rate SingTel & Starhub as Neutral and have a Reduce rating on M1. We continue to prefer SingTel for its growth potential outside of Singapore and cheaper valuation over its local peers.
SingTel – BT
Bharti close to buying Qualcomm unit: sources
Qualcomm Inc is asking Bharti Airtel Ltd, India's largest mobile-phone operator, to pay about 50 billion rupees (S$1.16 billion) for its Indian unit as the two companies seek to conclude talks in the next two weeks, according to two people with knowledge of the matter.
Bharti may purchase the unit in instalments over two years, the people said, declining to be identified as the details are private. Under the plan, Bharti would initially purchase a 26 per cent stake in the unit, currently held by Tulip Telecom Ltd and Global Holding Corp, and Qualcomm will own 51 per cent of the division for at least two years after that, the people said.
Qualcomm, the biggest maker of mobile-phone chips, bought frequency licences in cities including New Delhi and Mumbai in June 2010, paying 49.1 billion rupees for spectrum that allows handset users to download video at greater speeds. The San Diego, California-based company was allocated spectrum this month, two years after paying for the airwaves, people with knowledge of the matter said on May 8.
Mobile-phone operators in India including Bharti Airtel and Vodafone Group Plc are trying to boost revenue by selling services such as video streaming as incomes rise. The number of smartphones sold in India almost doubled last year to 11 million, according to data compiled by Bloomberg.
SPAusNet – BT
SP AusNet to raise A$434m in offer to shareholders
SP AusNet, the Australian electricity distributor 51 per cent owned by Singapore Power, will raise A$434 million (S$547.2 million) in a share offer to existing investors to help fund expansion, Bloomberg reported.
Separately, the company also said that the Supreme Court of Victoria has formally approved the compensation offered in a bushfire class action in Australia.
As for the share offer, Bloomberg reported that SP AusNet will offer investors three shares for every 20 that they hold at A$1 apiece. That is an 11 per cent discount to yesterday's closing price of A$1.125.
SingPower will take its 51 per cent entitlement with the balance to be underwritten by Macquarie Group and UBS AG.
SingTel – TODAY
Bharti Airtel in money laundering probe
The authorities are investigating top mobile phone carrier Bharti Airtel under its money laundering and foreign exchange rules in a probe related to the grant of airwaves a decade ago.
Bharti shares fell as much as 5.1 per cent during trade yesterday after Minister of State for Finance S S Palanimanickam told Parliament that the Directorate of Enforcement was investigating the company. The shares pared most losses to close 1.2 per cent down.
Indian mobile market leaders Bharti and Vodafone’s local unit are not involved in a massive scandal over alleged below-market-price sale of lucrative telecoms licences in 2008 that has rocked the once-booming sector. They are, however, being investigated over airwave grants during 2001 and 2002.
Bharti, controlled by India’s fifth-richest man Sunil Mittal, said in a statement it was cooperating with investigators. It did not give the reason for the investigation, but a company source told Reuters that it was related to the probe over airwave grants.
“Bharti Airtel maintains the highest standards of corporate governance and regulatory compliance. We have already provided all relevant details asked for by the relevant authorities in this matter and will be happy to cooperate further,” the company said in the statement.
The Minister, who was replying to questions from a lawmaker through a written statement, declined to give further details.
Bharti, nearly one-third owned by South-east Asia’s top phone company, SingTel, operates in 20 countries across Asia and Africa and is the world’s fifth-biggest mobile phone carrier by subscribers. India is its biggest market.
Shares in Bharti, valued at more than US$21 billion (S$26 billion), lost 3.6 rupees (S$0.08) to close at 304.15 rupees, after hitting an intra-day low of 292.05 rupees.
A series of corruption scandals during Prime Minister Manmohan Singh’s second term have rocked the government and businesses, sparking street protests by anti-graft activists and spurring a flurry of investigations of companies.
The scandal over the 2008 licence grant has ensnared prominent politicians and high-profile corporate executives. The police have charged a total 19 people and six companies in the scandal, which the CAG has estimated has cost the exchequer as much as US$34 billion in lost revenue.
Last November, the police conducted searches at offices of Bharti and Vodafone India seeking details of airwaves allocated to them in 2001 and 2002 by a government then led by the Bharatiya Janata Party (BJP), now in opposition.
The investigation is continuing and police are yet to file any formal charge against the companies. Both Bharti and Vodafone India have denied any wrongdoing.
The BJP had attacked the Congress-led government over the corruption scandals and forced a near-shutdown of Parliament for much of last year. The BJP had alleged that the government was trying to “divert the attention” by probing spectrum grants during its term in power. REUTERS
ComfortDelgro – DMG
Overseas ops continue to support growth
1Q12 results in-line with our expectations. ComfortDelGro’s (CD) 1Q12 PATMI came in within our expectations at S$54m (-5% QoQ, +7% YoY) on the back of higher revenue of S$855m (-4% QoQ; +7% YoY) with operating margins flat at 10.9% (versus 10.8% EBIT margin for both 4Q11 and 1Q11 period). 1Q12 PATMI made up 21.3% of our full year estimate. Amidst this difficult period for domestic bus and rail operators that are facing cost pressures, we continue to favour CD who has displayed strength in its overseas business, with 1Q12 overseas EBIT up 27% YoY to S$46m and contributing 49% to total EBIT. Maintain BUY with TP of S$1.75 based on DCF (WACC: 9.3%; TGR: 1.5%).
Growth in bus business came from overseas. 1Q12 Singapore (SG) bus EBIT fell 63% YoY to S$2.8m. Performance remained lacklustre as high fuel, staff, and repair and maintenance costs continue to compress margins. CD has commented that 40% of its FY12 fuel costs for SG and UK have been hedged. Despite SG bus ridership growth of 4.2% YoY in 1Q12, we continue to foresee a difficult domestic bus operating environment should cost pressures persist while average fares remain depressed. On the other hand we remain positive on CD’s overseas bus operations in which 1Q12 EBIT grew 41% YoY to S$30m.
DTL costs start creeping in, but not the key concern for rail. 1Q12 rail EBIT fell 49% YoY to S$3.9m due to higher repair and maintenance, and electricity costs. Stage 1 of Downtown Line (DTL) is expected to be completed by 4Q13, and CD has since hired additional 40-50 staff for DTL. Headcount for DTL is expected to increase throughout the year and is targeted to hit additional c.180-200 staff before DTL commences operations. However, DTL staff cost increases are not a major concern for us given that the new hires will largely be lower level staff. Moreover rail operations accounted for just 7% of overall FY11 EBIT.
Valuations attractive. At FY12 P/E of 12x, CD remains relatively more attractive than SMRT’s 16x FY13 P/E (FYE Mar). CD’s widespread overseas network allows it better overseas growth prospects which we view as a strong advantage.