Author: kktan
TELCOs – CIMB
3Q12 results round-up
Telcos’ 3Q12 results were a mixed bag. StarHub surprised on the upside due to lower traffic costs while SingTel disappointed. The main notables were 1) the deceleration of mobile revenues, 2) acceleration of fibre broadband net adds, and 3) rise in pay TV competition.
We remain Neutral on the sector as we see no major rerating catalysts. StarHub (Outperform) is still our top sector pick as it offers the highest dividend yield among Singapore telcos and upside potential to its dividends due to its strong FCFE and robust balance sheet.
Mixed results
SingTel’s 3Q12 results missed expectations because of the drag from Bharti which overshadowed the anticipated strong showing in Singapore. Overall, SingTel continued to gain market share in all segments: mobile, fixed broadband, and pay TV. StarHub’s 3Q trumped expectations with the help of lower traffic costs but M1’s results undershot due to unexpectedly high subscriber acquisition costs (SAC).
Mobile revenues dipped
Industry mobile revenue growth slowed to 1.1% yoy from 1.5% in 2Q12 and 4.2% in 1Q12. The slowdown came from lower roaming revenue due to less inbound and outbound roaming. M1’s and SingTel’s mobile revenues rose qoq (seasonality) but StarHub (-1.4% qoq) disappointed as it had lowered roaming rates with the Vodafone group. SingTel is still gaining market share, thanks to its aggressive bundling of mobile broadband with fixed broadband. Its revenue share rose 0.5% pts to 51.7% at the expense of StarHub whose share fell 0.5% pts to 32.2%.
Fibre accelerated
3Q fixed broadband revenue accelerated to 8% yoy because of an 11% jump in SingTel’s 3Q revenue. SingTel captured 59% of new subscribers in 3Q, similar to 60% in 2Q. The telco now has 58% fibre broadband market share.
Pay TV race heats up
SingTel’s mioTV notched up 4.7% qoq growth in revenue and raised its market share by 2% pts to 24%, driven by a combination of higher ARPU and subscribers. With a new line-up of >130 channels, SingTel has substantially narrowed the gap with StarHub’s 157 channels, eroding the latter’s differentiation and dominance.
TELCOs – OCBC
3QCY12 REVIEW – STILL OVERWEIGHT
- 1 hit, 2 near-misses
- Defensive story intact
- Yield compression also likely
StarHub again above forecast
Out of the three telcos, StarHub again posted 3Q12 results that were above our forecast, aided by a stronger-than-expected margin recovery (mainly coming from lower traffic expenses). M1 and SingTel both posted results that were slightly below our estimates, with the former citing continued upfront smartphone subsidy expensing for the shortfall, and the latter hit by weaker Optus performance and also a slide in regional currencies against the SGD.
Review of Singapore mobile operations
On the core post-paid mobile market, SingTel continues to dominate with ~48% share, then StarHub with ~28% and M1 ~26%. But we note that post-paid subscriber base grew 55k QoQ to 4180k, even though the market already has a penetration rate of nearly 150%, with some 70% of post-paid subscribers using smartphones. Monthly ARPUs are relatively stable; but could see increases once LTE (or 4G) takes off from 1Q13, aided by the introduction of more LTE-enabled phones and also tiered pricing plans with less generous data bundles.
Biggest surprise from SingTel
Both M1 and StarHub are still guiding for relatively stable outlook for 2012, albeit with potential erosion in service EBITDA margins. However, SingTel surprised by guiding for consolidated group revenue to see a low single-digit (versus single-digit growth previously), mainly dragged down by continued weakness in Australia. However, we think that all the three telcos should continue to generate very positive operating cashflows and this should keep their healthy dividend payouts intact.
Maintain OVERWEIGHT
While the three telcos have performed reasonably well this year, led by StarHub, we continue to like their defensive business against the still-uncertain economic backdrop. Further yield compression could also be another price catalyst over the next 12 months. Hence we maintain our OVERWEIGHT rating and keep M1 as our top pick.
SingTel – Phillip
Company Overview
SingTel (ST) is a leading communications service provider with diversified geographical exposures. The core part of SingTel’s business resides in Singapore & Australia, while meaningful stakes in its regional Associates provides the Group with exposure across Asia-Pacific.
- Underlying net income stable y-y at S$886 million
- Guidance on Optus revenue revised downward to negative mid-single digit levels
- Group EBITDA guided to remain stable
- Unchanged Interim DPS of 6.8cents
- We rate SingTel as Neutral with new TP of S$3.06
What is the news?
SingTel reported 2Q13 underlying profits of S$886 million, increasing 0.1% y-y. Management revised its guidance on Australia from low single-digit revenue growth, to negative mid-single digit revenue decline, as it focuses on improving customer experience and yield, in the challenging environment. However, EBITDA is expected to remain stable on a Group level, in Singapore, and in Australia. The Group’s 30% equity interest in Ward has also been reclassified as “Asset Held for Sale”. An unchanged interim dividend of 6.8 cents per share was also declared, representing a 62% payout of current 1H13 earnings.
How do we view
2Q13’s earnings were below our expectations on weaker revenue from Optus, mitigated by good cost management. While guidance was lowered, we note the rather resilient performance, while potential earnings surprise may arise from improved data monetization, contributions from Digital Life, and SingTel’s associates.
Investment Actions?
We factor in 2Q13’s earnings, together with management’s downward revision of Optus revenue guidance. We derive a new Sum-of-the-parts (SOTP) target price of S$3.06, and maintain our “Neutral” call.
ComfortDelgro – DBSV
Slowly but surely delivering
- A record 3Q12 net profit – within expectations
- EBIT margins remained stable despite cost challenges
- Trades below historical average even with YTD share price appreciation of c.19%
- Maintain BUY, TP: S$1.86. Preferred land transport counter over SMRT
3Q12 within expectations. 3Q12’s net profit reached a record of S$72.8m, which was up by 5.4% y-o-y, on the back of a 2.7% growth in revenue to S$900.8m. Revenue growth was broad-based driven, by all business segments except Automotive Engineering. 9M12 profits account for 77% of our FY12F forecasts, roughly in line with previous year (1H11 76% of FY11).
EBIT margins remained at 13%. EBIT margins remained at 13% even though the group operates in a higher cost environment. This was helped by mainly lower material and consumables (-10.6%) and energy & fuel (-6.2%), offset by higher staff costs (+5.9%), contract services (+14.5%) and repair & maintenance (+8.1%). Management has hedged a substantial portion of its energy and fuel needs into FY13.
Preferred land transport counter, Maintain BUY with TP of S$1.86. We continue to like CD for its stable earnings growth profile, geographical diversification despite challenges for its bus business in Singapore and start up costs for rail (DTL). We expect its diversification to aid in buffering the impact from weaker segments. Despite rising by c.19.4% YTD, the counter still trades -0.5 std dev below its historical average of c.15x, and is preferred over SMRT which trades at a higher c.18x FYE Mar14 PE. We also believe it has the ability to further increase its dividend payout ratio (FY11: 53%), and should be a catalyst for the stock price should this materialis. We are currently assuming a conservative payout ratio of only 55% in our forecasts.
ComfortDelgro – Kim Eng
Delivering the Goods
Positive 3QFY12 results delivered. ComfortDelGro (CDG) delivered a positive set of 3QFY12 results, recording a 5.4% YoY increase (+SGD3.7m) in PATMI to SGD72.8m. These results were largely in line with expectations given that 9MFY12 PATMI comprised 78-79% of ours and consensus’ full-year estimates, and noting that 4Q has been a historically weaker quarter. We maintain our BUY call on CDG as our preference in the Singapore Land Transport sector, Target Price unchanged at SGD1.94.
Taxis once again lead profit growth. CDG’s 3QFY12 operating profit growth of 2.8% (+SGD3.2m) YoY was boosted by its taxi segment which showed an improvement of 8% (+SGD3.0m). In particular, the Singapore taxi segment drove the profit growth, as it was a beneficiary of higher rental income from replacement taxis and a larger fleet, as well as a higher volume of cashless transactions.
Buses and Rail bring up the rear. CDG’s bus business recorded a marginal operating profit growth of 1% YoY (+SGD0.6m), primarily helped by its UK and Australia businesses growing 6% and 2% respectively. The rail segment was the poorest performer, showing a 63% drop YoY (-SGD4.5) in operating profit, caused by start-up staff costs of the Downtown Line and higher repair and maintenance costs.
Outlook of revenue growth. Management’s revenue outlook remained upbeat, as it expects revenue to grow or at least be maintained in all segments except its bus business in China (divestment of Shenyang CDG) and its taxi business in UK (UK austerity measures).
Maintain BUY, reiterate preference over SMRT. We continue to prefer CDG in the Singapore land transport sector for its diversified business model, which not only provides additional avenues for growth, but also shields it from country-specific challenges (eg: Singapore). We leave our forecasts largely intact, and reiterate our BUY call and Target Price of SGD1.94, which is pegged to 16x FY13 PER.