Author: kktan
StarHub – CIMB
Calling for capital management with bond issuance?
We believe that StarHub’s planned issuance of a S$220m bond is a potential step towards a special dividend or increasing its dividend payout. This reinforces our view that StarHub is ripe for capital management given its low and rapidly-falling gearing level.
The bond issuance will be useful for Starhub given the impending spectrum auction, probably in 1H13. We maintain Outperform, with an unchanged DCF-based target price (WACC 7.9%, LTG 1.4%). StarHub remains our top Singapore telco and one of our preferred regional telco picks. This news and a further drop in gearing are key rerating catalysts.
What Happened
StarHub announced that it has priced its S$220m 10-year bond at 3.08%. This is part of its S$1bn multicurrency MTN programme. The closing date is 8 Sep 12. Proceeds will be used to finance capex and for debt refinancing.
What We Think
We think this is a step towards a special dividend or increasing its dividend payout. It reinforces our view that StarHub is ripe for capital management given its multi-year low net debt/EBITDA of 0.5x and strong FCFE. StarHub’s FY12-14 FCFE/share is S$0.22-0.29, based on our estimates and comfortably above its dividend policy of S$0.20/share.
The bond issuance will be useful given the impending spectrum auction, probably in 1H13. The regulator plans to auction off 1800MHz, 2.3GHz, and 2.5GHz spectrum for 4G service, which could cost S$138m if the auction proceeds, based on our estimates. However, telcos could walk away with the spectrum at the yet-to-be-announced reserve price if there is plenty of spectrum to go around.
What You Should Do
Remain invested in StarHub as we think this bond issuance will pave the way for StarHub to either raise its dividend payout or declare a special dividend/undertake a capital repayment. Although StarHub’s existing dividend yield of 5.6%, one of the highest among its regional peers, is already quite attractive, we assume DPS will rise to 22 cts in FY13, implying an even more impressive yield of 6.6%.
StarHub – CIMB
Calling for capital management with bond issuance?
We believe that StarHub’s planned issuance of a S$220m bond is a potential step towards a special dividend or increasing its dividend payout. This reinforces our view that StarHub is ripe for capital management given its low and rapidly-falling gearing level.
The bond issuance will be useful for Starhub given the impending spectrum auction, probably in 1H13. We maintain Outperform, with an unchanged DCF-based target price (WACC 7.9%, LTG 1.4%). StarHub remains our top Singapore telco and one of our preferred regional telco picks. This news and a further drop in gearing are key rerating catalysts.
What Happened
StarHub announced that it has priced its S$220m 10-year bond at 3.08%. This is part of its S$1bn multicurrency MTN programme. The closing date is 8 Sep 12. Proceeds will be used to finance capex and for debt refinancing.
What We Think
We think this is a step towards a special dividend or increasing its dividend payout. It reinforces our view that StarHub is ripe for capital management given its multi-year low net debt/EBITDA of 0.5x and strong FCFE. StarHub’s FY12-14 FCFE/share is S$0.22-0.29, based on our estimates and comfortably above its dividend policy of S$0.20/share.
The bond issuance will be useful given the impending spectrum auction, probably in 1H13. The regulator plans to auction off 1800MHz, 2.3GHz, and 2.5GHz spectrum for 4G service, which could cost S$138m if the auction proceeds, based on our estimates. However, telcos could walk away with the spectrum at the yet-to-be-announced reserve price if there is plenty of spectrum to go around.
What You Should Do
Remain invested in StarHub as we think this bond issuance will pave the way for StarHub to either raise its dividend payout or declare a special dividend/undertake a capital repayment. Although StarHub’s existing dividend yield of 5.6%, one of the highest among its regional peers, is already quite attractive, we assume DPS will rise to 22 cts in FY13, implying an even more impressive yield of 6.6%.
SingPost – Kim Eng
Look for higher yield elsewhere
Downgrade to HOLD. SingPost’s share price has increased by 8% in the past three months and is now close to our target price. Dividends yield has been compressed to 5.8%, below its 5-year average of 6%. We continue to believe that SingPost’s transformation efforts will benefit the company in the long term, but fail to see any short-term catalyst to boost its current price further. We maintain our target price of SGD1.10 but downgrade the stock to HOLD due to its limited upside.
Transformation impacts only the top line. We appreciate Singapore Post’s transformation effort. In recent quarters, we have started to see some positive momentum in revenue thanks to the investments that SingPost has made during the past few years. However, cost pressure is keeping bottom-line growth subdued. We expect the company’s net profit to remain on a downward trend for at least the rest of FY13.
Asset divestment is unlikely. The post offices island-wide are precious assets. However, our understanding is that SingPost does not have an incentive to monetise those assets anytime soon given its substantial net cash balance of SGD161.4m.
Wait for a better entry point. SingPost is trading at FY3/13 dividend yield of 5.8%, which is no longer attractive relative to its historical band. We recommend that investors take profit and wait for a better entry point. The near-term catalyst for this stock would be to use its cash pile to make some sizeable investments in order to speed up its transformation process.
Downside protected by dividends. SingPost has committed to paying a minimum dividend of 5 cents/share p.a.. However, we believe the group’s operating cash flow generation and recent fund raising can help maintain its dividend track record of 6.25 cents/share, which would support the share price at current level.
SingPost – Kim Eng
Look for higher yield elsewhere
Downgrade to HOLD. SingPost’s share price has increased by 8% in the past three months and is now close to our target price. Dividends yield has been compressed to 5.8%, below its 5-year average of 6%. We continue to believe that SingPost’s transformation efforts will benefit the company in the long term, but fail to see any short-term catalyst to boost its current price further. We maintain our target price of SGD1.10 but downgrade the stock to HOLD due to its limited upside.
Transformation impacts only the top line. We appreciate Singapore Post’s transformation effort. In recent quarters, we have started to see some positive momentum in revenue thanks to the investments that SingPost has made during the past few years. However, cost pressure is keeping bottom-line growth subdued. We expect the company’s net profit to remain on a downward trend for at least the rest of FY13.
Asset divestment is unlikely. The post offices island-wide are precious assets. However, our understanding is that SingPost does not have an incentive to monetise those assets anytime soon given its substantial net cash balance of SGD161.4m.
Wait for a better entry point. SingPost is trading at FY3/13 dividend yield of 5.8%, which is no longer attractive relative to its historical band. We recommend that investors take profit and wait for a better entry point. The near-term catalyst for this stock would be to use its cash pile to make some sizeable investments in order to speed up its transformation process.
Downside protected by dividends. SingPost has committed to paying a minimum dividend of 5 cents/share p.a.. However, we believe the group’s operating cash flow generation and recent fund raising can help maintain its dividend track record of 6.25 cents/share, which would support the share price at current level.
TELCOs – OCBC
2QCY12 REVIEW – OVERWEIGHT
- Mostly stable 2012 outlook
- But margins pressure exist
- Defensive earnings and still-attractive yields
Only StarHub was above
All three telcos recently reported 2QCY12 results, but the only bright spark came from StarHub (even beat our earnings forecast) while both M1 and SingTel turned in quarterly results that were somewhat disappointing. For M1, it attributed the softer showing to accounting treatment for a popular Android phone (where subsidies are expensed upfront), while SingTel cited weaker forex rates (affecting Optus and regional associates) as reason behind for its muted showing.
Review of Singapore mobile operations
For the post-paid mobile market, there was no change to status quo – SingTel continues to dominate with a ~48% share, followed by StarHub with ~28% and M1 ~26%. Overall, the post-paid subscriber base here grew by 58k to 4125k, led by SingTel (+45k). We note that some 70% of new signups now take up smartphones, and data as a percentage of ARPU – currently around 37-42% – could increase further.
Mostly stable 2012 outlook
SingTel and StarHub have guided for a stable outlook ahead, although their EBITDA margin outlook continues to be fairly muted; this probably due to rising content cost for their Pay TV businesses. On the other hand, M1 has not reiterated its “stable performance at both top and bottom-line guidance”, given the continued strong interest in Android phones (also possibly expecting higher subsidies for another new iPhone, which should also affect both SingTel and StarHub). Nation-wide LTE roll-out is also on the cards for all three but it remains at best a 2013 story (largely dependent on availability of LTE handsets).
Maintain OVERWEIGHT
Again, StarHub has continued to do well (+23% YTD), while SingTel (+7%) and M1 (+3%) have continued to lag the STI’s 14% gain. But with markets likely to remain volatile, we believe that the telcos’ defensive earnings and still-attractive yields offer a safe harbour for risk-adverse investors. Maintain OVERWEIGHT on the sector, with M1 still our preferred pick.