Author: kktan
TELCOs – BT
SingTel, StarHub share prices neck-and-neck
While the former drifts, the latter gains 4% on top of last year’s 11%
THE share prices of telco rivals SingTel and StarHub have been within spitting distance of one another over the last week, for the first time since 2006.
As SingTel’s share price spent the year either moving sideways or in slight decline, StarHub’s price has picked up considerably, narrowing the share price gap to just three cents yesterday. SingTel closed at $3.11, while StarHub closed at $3.08.
In terms of market capitalisation, however, the two telcos are still worlds apart. SingTel weighs in at the top of the Singapore Exchange with almost $50 billion while StarHub is just over a tenth of that value, at $5.2 billion.
Investors who bought into StarHub stock when it listed in 2004, however, would have made out a lot better than people who bought SingTel stock at the same time.
Excluding dividends, since StarHub went public, it has returned more than 200 per cent, from around 90 cents to about $3 today. During the same period, SingTel’s share price rose about 41 per cent.
For argument’s sake, an investor in M1 – the smallest telco of the three – would have seen a 61 per cent gain in share price over the same period. The counter closed at $2.51 yesterday, having climbed steadily from $2.41 since mid-January. Its market cap now stands at about $2.27 billion.
StarHub stock in particular saw a stellar 2011, recording the largest share price gain among the telcos – slightly over 10 per cent. Since the start of the year, it has chalked up an additional 4 per cent in gains.
In contrast this year, SingTel has spent the year knocking about sideways, starting the year at $3.14 and closing trading yesterday at $3.11. Nomura analysts noted in February that this rangebound trading has been going on for a while.
‘The stock has been stuck in a trading range of around $2.80-3.40 for the past two years . . . We do not see too many scenarios of it breaking this trading range, unless there is some possible business restructure,’ the Nomura report said.
That restructuring recently came to fruition when SingTel announced a full-scale organisational overhaul with a new emphasis on the digital sector. Even so, CIMB analyst Kelvin Goh – who holds a ‘neutral’ rating on SingTel with a target price of $3.36 – remained ‘cautious on SingTel as we think its earnings growth will be under pressure from its overseas operations’.
Other analysts are standing by SingTel, with DBS Group Research’s Sachin Mittal deeming it his top pick in Singapore as Bharti looks to gain ground in India. Mr Mittal had a ‘buy’ rating on SingTel with a $3.32 price target at the start of the month.
The sector as a whole, however, gets a vote from OCBC’s Carey Wong, who is overweight on telcos. He has ‘buy’ ratings for all three firms.
‘With markets likely to remain volatile, we believe that the telcos’ defensive earnings and attractive yields offer a safe harbour for the less risk-adverse investors,’ he said in his report.
TELCOs – BT
SingTel, StarHub share prices neck-and-neck
While the former drifts, the latter gains 4% on top of last year’s 11%
THE share prices of telco rivals SingTel and StarHub have been within spitting distance of one another over the last week, for the first time since 2006.
As SingTel’s share price spent the year either moving sideways or in slight decline, StarHub’s price has picked up considerably, narrowing the share price gap to just three cents yesterday. SingTel closed at $3.11, while StarHub closed at $3.08.
In terms of market capitalisation, however, the two telcos are still worlds apart. SingTel weighs in at the top of the Singapore Exchange with almost $50 billion while StarHub is just over a tenth of that value, at $5.2 billion.
Investors who bought into StarHub stock when it listed in 2004, however, would have made out a lot better than people who bought SingTel stock at the same time.
Excluding dividends, since StarHub went public, it has returned more than 200 per cent, from around 90 cents to about $3 today. During the same period, SingTel’s share price rose about 41 per cent.
For argument’s sake, an investor in M1 – the smallest telco of the three – would have seen a 61 per cent gain in share price over the same period. The counter closed at $2.51 yesterday, having climbed steadily from $2.41 since mid-January. Its market cap now stands at about $2.27 billion.
StarHub stock in particular saw a stellar 2011, recording the largest share price gain among the telcos – slightly over 10 per cent. Since the start of the year, it has chalked up an additional 4 per cent in gains.
In contrast this year, SingTel has spent the year knocking about sideways, starting the year at $3.14 and closing trading yesterday at $3.11. Nomura analysts noted in February that this rangebound trading has been going on for a while.
‘The stock has been stuck in a trading range of around $2.80-3.40 for the past two years . . . We do not see too many scenarios of it breaking this trading range, unless there is some possible business restructure,’ the Nomura report said.
That restructuring recently came to fruition when SingTel announced a full-scale organisational overhaul with a new emphasis on the digital sector. Even so, CIMB analyst Kelvin Goh – who holds a ‘neutral’ rating on SingTel with a target price of $3.36 – remained ‘cautious on SingTel as we think its earnings growth will be under pressure from its overseas operations’.
Other analysts are standing by SingTel, with DBS Group Research’s Sachin Mittal deeming it his top pick in Singapore as Bharti looks to gain ground in India. Mr Mittal had a ‘buy’ rating on SingTel with a $3.32 price target at the start of the month.
The sector as a whole, however, gets a vote from OCBC’s Carey Wong, who is overweight on telcos. He has ‘buy’ ratings for all three firms.
‘With markets likely to remain volatile, we believe that the telcos’ defensive earnings and attractive yields offer a safe harbour for the less risk-adverse investors,’ he said in his report.
MIIF – AmFraser
High-yield TOP pick
• High-yield TOP pick: In our 13 Mar 2012 report titled “The Yield Hunt”, we named MIIF our top high-yield pick with a 9.6% dividend yield, ahead of three other stocks with a history of increasing dividends. We think investing in high-dividend-yield stocks is a way to protect and to grow wealth, particularly in an inflationary and uncertain environment.
• Fund out, funds in: Over the last months, we saw MIIF’s once-largest shareholder Abu Dhabi Investment Authority (ADIA) reduce its stake from 10% to 6% today. We think it is possible that it is looking to exit from this investment entirely, thus putting a near-term cap on MIIF’s share price.
For every seller there is a buyer, and we note that a couple of funds have bought up MIIF in force. These are Asset Value Investors (7.5%) and Long Investment Management Int’l (6.2%); both are value-focused. While we can only speculate on ADIA’s reasons for selling, the strong buying by two separate value-funds is indicative of their private valuations being sufficiently in excess of the market price.
• Another way to value MIIF is to note that management has already valued the three assets using the latest information, a lot of which is private and superior to publicly available data, resulting in an NAV of $0.8123 per share.
From this figure we would subtract the present value of all future expenses, totalling $125m (we have conservatively estimated this figure on the high side), equivalent to $0.1057, for a FV of $0.707, not too different from our DCF FV of $0.691.
• Price supports; dividend yield promotes outperformance. MIIF’s share buybacks are backed by S$110m in cash and a dividend yield in excess of 9%. We note that its share price tracks the market fairly closely (up until the recent outperformance), and the very high yield should ensure outperformance relative to the market each year.
• Focus on underlying value especially from a portfolio perspective: In our eyes, MIIF is a strong dividend play (9.6%) with significant capital gains potential (20%) for a total upside close to 30%. This combination is rather difficult to find elsewhere. The dividend is also likely to increase with asset growth—we forecast the next dividend growth in 2014F. We reiterate our Buy call with an unchanged FV of $0.690.
MIIF – AmFraser
High-yield TOP pick
• High-yield TOP pick: In our 13 Mar 2012 report titled “The Yield Hunt”, we named MIIF our top high-yield pick with a 9.6% dividend yield, ahead of three other stocks with a history of increasing dividends. We think investing in high-dividend-yield stocks is a way to protect and to grow wealth, particularly in an inflationary and uncertain environment.
• Fund out, funds in: Over the last months, we saw MIIF’s once-largest shareholder Abu Dhabi Investment Authority (ADIA) reduce its stake from 10% to 6% today. We think it is possible that it is looking to exit from this investment entirely, thus putting a near-term cap on MIIF’s share price.
For every seller there is a buyer, and we note that a couple of funds have bought up MIIF in force. These are Asset Value Investors (7.5%) and Long Investment Management Int’l (6.2%); both are value-focused. While we can only speculate on ADIA’s reasons for selling, the strong buying by two separate value-funds is indicative of their private valuations being sufficiently in excess of the market price.
• Another way to value MIIF is to note that management has already valued the three assets using the latest information, a lot of which is private and superior to publicly available data, resulting in an NAV of $0.8123 per share.
From this figure we would subtract the present value of all future expenses, totalling $125m (we have conservatively estimated this figure on the high side), equivalent to $0.1057, for a FV of $0.707, not too different from our DCF FV of $0.691.
• Price supports; dividend yield promotes outperformance. MIIF’s share buybacks are backed by S$110m in cash and a dividend yield in excess of 9%. We note that its share price tracks the market fairly closely (up until the recent outperformance), and the very high yield should ensure outperformance relative to the market each year.
• Focus on underlying value especially from a portfolio perspective: In our eyes, MIIF is a strong dividend play (9.6%) with significant capital gains potential (20%) for a total upside close to 30%. This combination is rather difficult to find elsewhere. The dividend is also likely to increase with asset growth—we forecast the next dividend growth in 2014F. We reiterate our Buy call with an unchanged FV of $0.690.
M1 – CIMB
Muted tone
Our recent visit to M1 left our views unchanged. Any re-rating catalysts will depend on improvements relating to LTE and NGNBN, we feel. Take-up of fibre remains slow owing to issues at OpenNet.
The regulator has stepped in to resolve issues such as bureaucracy and installation capacity at OpenNet. Lacking re-rating catalysts, we remain Neutral and keep our DCF target price (WACC 7.9%). Switch to StarHub which has capital-management potential, in our view.
Benign competition, eyeing higher LTE price
There are no competitive hotspots emerging in the mobile space. M1 has stopped offering unlimited mobile broadband to new customers. It has launched LTE services but only to corporate users and then limited to the central business district and industrial areas. M1 plans to raise LTE prices when subscribers expand in 2H12. SingTel also has plans to raise LTE prices when coverage reaches a larger part of the country.
Catalysing NGNBN
Along with the other service providers, M1 has submitted its response to the regulator on the provision of services to NGNBN and is awaiting response from the IDA. Among the matters raised are bureaucratic issues; revision of installation quota, and inconsistent data between OpenNet and access seekers.
Potentially higher capex
M1’s capex could rise on the back of more stringent regulatory requirements for mobile coverage. M1 has not revealed numbers as it is still in dialogue with the regulator on more reasonable coverage terms.
Lacking catalysts
M1 continues to lack re-rating catalysts, in our view. Such catalysts could come from raising data prices, resolving matters with NGNBN, and clarity on its capex from the regulator’s plans to boost service quality. M1 noted a slight improvement in OpenNet’s attitude to resolving issues but much more would need to be done. Switch to StarHub, which is likely to manage capital in the form of a special DPS/capital repayment in 2H12, on top of its attractive recurring 20ct DPS.