Author: kktan
TELCOs – CIMB
SingTel directed to share BPL
In a surprising move, the regulator has directed SingTel to cross-carry the 2013-16 seasons of the Barclays Premier League. This is despite SingTel having non-exclusive rights to the BPL, which allows it to not share its content. This raises the question of MDA over-ruling again.
StarHub stands to gain a little as this lowers the likelihood of churns and generates revenues from providing cross carriage. It is a setback for SingTel in its efforts to build up a pay TV franchise. All in, this development does not change our forecasts and views on SingTel and StarHub. The sector remains a Neutral with M1 (Outperform) as our top pick.
What Happened
In a surprising move, the Media Development Authority (MDA) has directed SingTel to cross-carry Barclays Premier League (BPL) 2013-16 seasons. This is despite SingTel acquiring the rights to the BPL on a non-exclusive basis, which it is not required to share. SingTel said it will “appeal this decision and seek legal recourse if necessary”. It added that customers who wish to watch BPL on its own (via cross carriage) will most likely have to pay significantly higher monthly fees.
What We Think
MDA’s decision surprised us as it contradicts its cross-carriage ruling that was enforced in March 2010. The MDA ruled that holders of exclusive content are obligated to open their content while holders of non-exclusive content are not required to share. With this about-turn, it raises the question of MDA over-ruling again in the future. This is a major setback for SingTel in its quest to capture a bigger piece of the pay TV pie. By having to share the BPL, SingTel’s ability to have users sign up to mio TV is sharply reduced. This ruling is a small positive for StarHub as its customers can now subscribe for BPL directly from SingTel without having to sign up with SingTel’s overall pay TV service. This reduces the likelihood of StarHub’s customers leaving for SingTel.
What You Should Do
Stay invested in M1, our top Singapore telco pick. While positive for StarHub, this regulatory outcome does not change our Neutral recommendation on StarHub. The negative impact on SingTel reinforces our Underperform recommendation on the stock.
M1 – OSK DMG
A Seasonally Weaker Quarter, Roaming Revenues Stay Under Pressure
There were no surprises in M1’s 1QFY13 results, which reflected typical seasonality and the extended weakness in roaming revenue. Management expects margin upside to be capped as subscriber acquisition cost (SAC) will likely remain high. We maintain our core earnings forecasts, which assume a two-year CAGR of 14.5%. Our FV remains at SGD2.70, based on DCF (10% WACC). Maintain NEUTRAL.
Weaker roaming revenue set to persist. We remain concerned over the decline in M1’s roaming revenue – which makes up 12%-15% of its overall mobile revenue – as it is suffering from a growing number of travelers opting for connectivity via Wi-Fi. To mitigate the pressure on traditional roaming revenues, M1 has signed agreements with operators in over 120 countries to provide unlimited Wi-Fi data roaming services.
9% of subs consuming data in excess of bundle. M1 revealed that 20% of its postpaid subscribers are on tiered data plans, with 9% of these subscribers exceeding their data bundle – average revenue per unit (ARPU) uplift of 8%-10%. This suggests that it is only able to monetize 2% of its postpaid base on its LTE plans. Average data consumption on smartphones has exceeded 2GB/month vs 1.6GB/month a year ago.
Flattish fiber subs addition. Although M1 grew its fiber customers to 60k in 1QFY13, subscriber net additions have been relatively flat, at 8k, in the past two quarters. Its share of the fiber additions have also been on a decline, a reflection of the more aggressive acquisition campaigns and bundling promotions by SingTel and StarHub. Management does not see the absence of premium content as a hindrance in growing its fiber business.
Share price playing catch-up. M1’s share price has risen 11.3% YTD, which could indicate a laggard play following its relative underperformance vis-à-vis its peers in 2012. Management has reaffirmed its previous net profit guidance of ‘moderate growth’ and capex guidance of SGD130m-SGD150m for FY13 (excluding 4G spectrum cost). We make no changes to our core earnings forecasts of SGD161m and SGD192m for FY13 and FY14 respectively. NEUTRAL.
M1 – OSK DMG
A Seasonally Weaker Quarter, Roaming Revenues Stay Under Pressure
There were no surprises in M1’s 1QFY13 results, which reflected typical seasonality and the extended weakness in roaming revenue. Management expects margin upside to be capped as subscriber acquisition cost (SAC) will likely remain high. We maintain our core earnings forecasts, which assume a two-year CAGR of 14.5%. Our FV remains at SGD2.70, based on DCF (10% WACC). Maintain NEUTRAL.
Weaker roaming revenue set to persist. We remain concerned over the decline in M1’s roaming revenue – which makes up 12%-15% of its overall mobile revenue – as it is suffering from a growing number of travelers opting for connectivity via Wi-Fi. To mitigate the pressure on traditional roaming revenues, M1 has signed agreements with operators in over 120 countries to provide unlimited Wi-Fi data roaming services.
9% of subs consuming data in excess of bundle. M1 revealed that 20% of its postpaid subscribers are on tiered data plans, with 9% of these subscribers exceeding their data bundle – average revenue per unit (ARPU) uplift of 8%-10%. This suggests that it is only able to monetize 2% of its postpaid base on its LTE plans. Average data consumption on smartphones has exceeded 2GB/month vs 1.6GB/month a year ago.
Flattish fiber subs addition. Although M1 grew its fiber customers to 60k in 1QFY13, subscriber net additions have been relatively flat, at 8k, in the past two quarters. Its share of the fiber additions have also been on a decline, a reflection of the more aggressive acquisition campaigns and bundling promotions by SingTel and StarHub. Management does not see the absence of premium content as a hindrance in growing its fiber business.
Share price playing catch-up. M1’s share price has risen 11.3% YTD, which could indicate a laggard play following its relative underperformance vis-à-vis its peers in 2012. Management has reaffirmed its previous net profit guidance of ‘moderate growth’ and capex guidance of SGD130m-SGD150m for FY13 (excluding 4G spectrum cost). We make no changes to our core earnings forecasts of SGD161m and SGD192m for FY13 and FY14 respectively. NEUTRAL.
SMRT – DBSV
Free pre-peak morning MRT rides
- Free travel on MRT trains for those who exit at 16 city stations before 7.45am on weekdays
- Government to fund this 1-year trial, starting 24 Jun 13
- No immediate impact on SMRT and CD
- Maintain FULLY VALUED on SMRT on operational challenges; BUY CD for geographical exposure
Free travel on MRT trains on weekday mornings.
Singapore’s Land Transport Authority (LTA) announced this morning that it will embark on a one-year trial starting from 24 Jun 13 to provide free travel on the rail network for commuters who end their journey before 7.45am on weekdays at 16 designated MRT stations in the city area. In addition, commuters who exit these 16 stations between 7.45am to 8am will be given a discount of up to 50 cents off their train fare. The government will be funding this trial.
The objective of this trial is to encourage commuters to make changes to their travel schedule into the city area to spread out the morning peak hour crowds.
What are the changes from the current scheme?
Currently, a 50 cents discount is given for commuters who exit at 14 city stations before 7.45am from Mondays to Fridays (excluding public holidays). Refer to table below for a summary of changes.
Our views:
No immediate impact on SMRT and CD. As the trial will be funded by the government, (said to cost S$10m according to The Straits Times), we do not foresee any direct impact on SMRT or CD at this juncture arising from the provision of free travel and discounts during the aforementioned timings. However, it is expected that train trips will be increased during this period to shorten waiting times, and therefore should increase operating costs marginally.
On a positive note, this may alter travel patterns, relief pressure on peak hour travel and may also improve overall public transport ridership.
M1 – Phillip
Positive on continued Data monetizing
Company Overview
M1 is the 3rd largest Telecommunications company in Singapore. The introduction of NGNBN in Singapore lowered entry barriers to the Fixed Line business, which would allow M1 to venture into the corporate and retail
broadband market.
- 1.7% y-y increase in Net Income, Service revenue healthy with 4.1% y-y growth
- Positive on 11% of re-contracting customers upgrading to higher tiered postpaid plans
- Maintain Neutral, with new TP of S$2.58.
What is the news?
M1 reported 1.7% y-y increase in Net profits. Similar to the previous quarter, service revenue was positive. Y-y increases in revenue contribution from Mobile telecommunication services and Fixed services were also
registered. International call service revenue was however down on lower roaming and International calling card usage. Expenses remain well managed. Net income was above expectations due to lower cost of services. Management guided for moderate growth in FY2013 net profit after tax.
How do we view this?
We are positive on management’s guidance of further data monetizing. While postpaid customers continue to exceed their data allowances, management also guided that 11% of re-contracting customers have upgraded to higher tiered postpaid plan. We continue to expect further data monetizing, although at a tapered rate due to higher proportion of signups from more cost conscious customers moving forward. Management guides for high capital expenditure requirements in FY2014-FY2015. Coupled with the upcoming spectrum auction, we think that there is limited potential for M1 to increase dividend yield in the near term.
Investment Actions?
We adjust our figures to reflect 1Q13 earnings, and lower cost. We continue to expect M1 to deliver stable net profits moving forward. M1’s dividend yield of 5.0% continues to remain attractive at current prices. However, we expect limited upside capital gains, due to previous share price rally and lower earnings growth. We maintain our “Neutral” rating, with a new TP of S$2.58.