Author: kktan
M1 – CIMB
Launch of LTE
“Soft launch” of LTE
M1’s “soft launch” of LTE is not expected to have much impact on either its revenue or costs given the limited coverage and devices on offer. Moreover, the cost of the dongles is not too hefty at this point. We view this launch more as a publicity campaign to drum up support as coverage is widened and more devices are available as M1 typically likes to be the first to launch new services. There should not be any issue over spectrum as it, together with StarHub, has the highest amount of 1800 MHz spectrum. This should be sufficient for M1 to cope with any upsurge in data traffic. We make no changes to our earnings forecasts, NEUTRAL rating or DCF-based target price of S$2.63 (WACC 8.5%). M1 remains our top Singapore telco pick.
The news
M1 has launched its Long Term Evolution (LTE) service to enterprise customers which would operate on the 1800 MHz and 2600 MHz bands with initial theoretical download speeds of 75 Mbps and upload speeds of 37.5 Mbps. By end-2012, download speeds will be upgraded to 150 Mbps and upload speeds to 75 Mbps. The service will only be available to selected parts of the island within the financial district, including Marina Bay, Suntec, Shenton Way and others. Coverage will progressively be expanded to other areas and should be nationwide by 1Q12. The launch will only involve enterprise customers which will be able to access the service via USB modems on existing mobile broadband plans of S$59.40/month. An expanded range of devices including tablets and smartphones will be available later this year.
LTE is a mobile broadband standard widely regarded as a successor to 3G and is on the path to 4G. It is based on all-IP network and promises improvements in speed, network capacity, coverage, operating costs and user experience. The standard currently provides download peak rates of at least 100 Mbps with future developments potentially yielding speeds as fast as 300 Mbps while upload speeds should at least be 50 Mbps.
Comments
More of a soft launch. We view the announcement as more of a soft launch as it is only targeted at enterprise customers, LTE coverage is fairly limited and more devices will only be expected in the later part of the year (expected sometime in 3Q at the earliest). Nationwide coverage is only expected in 1Q12. We believe M1 is trying to drum up publicity ahead of a wider launch as it likes to be the first to launch services, having done so with HSDPA in Dec 06 and NGNBN in Sep 10.
Not much impact on revenue and costs. We do not expect major revenue contributions from the service as coverage and devices remain limited. Moreover, M1 has protected its ARPU at this stage by charging S$59.40/month, which is the equivalent pricing for its fastest mobile broadband plan of 21 Mbps. On the cost front, there is not expected to be a huge impact as take-up will not be that significant and cost per device is not too exorbitant.
Spectrum not an issue. LTE will consume the bulk of M1’s capex spending of S$100m this year, as guided in the past, although no exact quantum has been disclosed. A key prerequisite by IDA for the re-use of 1800 MHz and 2600 MHz is there should no degradation to the quality of the operators’ 2G services. This should not be a problem for M1 as it had purchased an additional 2×5 MHz of 1800 MHz in Mar 11 at a whopping cost of S$21.7m (54x the reserve price) and together with StarHub, has the most 1800 MHz spectrum. This should enable the operators to handle any upsurge in data traffic and any potential network congestion issues.
Valuation and recommendation
We make no adjustments to our earnings forecasts, DCF-based target price of S$2.63 (WACC: 8.5%) and NEUTRAL rating. M1 lacks catalysts though this is balanced by having the most upside from NGNBN and benefits from soaring inbound visitors. It also has the most scope for capital management. M1 remains our top pick in the Singapore telco sector.
SMRT – OCBC
1Q revenue growth likely to be minimal
1Q revenue growth likely to be minimal. SMRT’s 1QFY12 revenue growth over the previous quarter is likely to be minimal despite increases in MRT and bus ridership for the first two months of the quarter as compared to 4QFY11. Extrapolating the ridership statistics for the quarter, we anticipate an increase in ridership of about 5% QoQ for MRT and 4% QoQ for bus services, but believe that the lower average fares resulting from the implementation of distance-based fares will negate these ridership improvements and limit revenue growth to only around 1% QoQ. Furthermore, the general increase of wholesale electricity prices over the same period and the upsurge in staff and related costs after the completion of additional staff recruitments for Stages 4 and 5 on the Circle Line during the last quarter will put a squeeze on 1Q11 operating profits.
Challenging operating environment remains. As SMRT’s 1QFY12 comes to a close, we expect cost pressures to persist with revenue growth being unable to keep pace with operating expenses. We maintain our view that operating losses from the Circle Line will continue due to the lack of optimal ridership levels and higher staff costs, and may persist even after the completion and full operation of the Circle Line in Oct 2011. The higher electricity and diesel costs experienced earlier during the year will also continue to bite and augment expenses. Although cost prices have since come off from earlier highs, they remain elevated at current levels compared to previous quarters. In terms of revenue growth, modification of fares seem unlikely this year even with increases in the consumer price index and average wages, which are the two main components in the fare adjustment formula. Given the general sensitivity of the population towards price increases, we believe that any fare hike decision will only take place towards the end of the year at the earliest.
Lack of growth catalysts, maintain HOLD. Since our last update issued on 3 May 2011, SMRT’s share price has hovered around S$1.86-S$1.92. We feel that these range-bound movements reflect the incorporation of the above-mentioned factors by the market as well as the general bearish mood over the recovery strength of the global economy by investors although prices have been supported by its relatively decent dividend yield of about 4.5%. As such, any immediate catalyst for improvement in its stock performance will have to come externally, from improvements in the general sentiment of investors over the global economic situation. In light of the anticipated mediocre 1Q results, we have revised our previous fair value estimate of S$2.07 down to S$2.04 and maintain our HOLD rating.
M1 – BT
M1 draws first blood in next-gen battle with roll-out of LTE service
SINGAPORE’S smallest operator M1 has pipped its two larger rivals in the race to secure higher mobile surfing speeds by being the first to introduce fourth- generation cellular services in Singapore.
The firm yesterday launched an ultra high- speed mobile broadband service over its newly minted LTE (long-term evolution) network in selected parts of Singapore.
For a start, M1’s LTE infrastructure covers major areas in and around Singapore’s financial district.
These include Tanjong Pagar, Shenton Way, Chinatown, Beach Road, Suntec City, and the Padang.
In addition, the network is also available in the Marina Bay area as well as Tanjong Rhu, according to an M1 statement.
‘Coverage is being progressively expanded and is scheduled to be nationwide by the first quarter of 2012,’ it added.
LTE is widely seen as the successor to the third- generation (3G) mobile networks that are in use today.
Its implementation would allow operators to offer blazing cellular data speeds that are more than a hundred times faster than existing 3G technologies.
M1’s new LTE network will initially boast download speeds of 75 Mbps (megabits per second), a four-fold improvement over the fastest mobile broadband plan being offered today.
By the end of next year, LTE download speeds will be doubled to 150 Mbps.
The network’s upload speeds will correspondingly be boosted from 37.5 Mbps currently to 75 Mbps, M1 said.
The company will initially offer its new LTE service to enterprise customers who are already on its mobile broadband plans.
For a monthly fee of $59.40, these subscribers will get a token-like USB modem to enjoy speedier surfing on their laptops within the areas of coverage.
More LTE-compliant devices such as tablets and smart phones are expected to be available later this year.
Singapore Telecommunications and StarHub will both roll out their LTE networks later this year.
To accommodate the upgrade, the Infocomm Development Authority of Singapore has already set aside two mobile frequency spectrums – the 2.3 and 2.5 GHz (gigahertz) band and the 900 and 1800 MHz (megahertz) band – for operators to boost their cellular bandwidth.
M1 – BT
M1 draws first blood in next-gen battle with roll-out of LTE service
SINGAPORE’S smallest operator M1 has pipped its two larger rivals in the race to secure higher mobile surfing speeds by being the first to introduce fourth- generation cellular services in Singapore.
The firm yesterday launched an ultra high- speed mobile broadband service over its newly minted LTE (long-term evolution) network in selected parts of Singapore.
For a start, M1’s LTE infrastructure covers major areas in and around Singapore’s financial district.
These include Tanjong Pagar, Shenton Way, Chinatown, Beach Road, Suntec City, and the Padang.
In addition, the network is also available in the Marina Bay area as well as Tanjong Rhu, according to an M1 statement.
‘Coverage is being progressively expanded and is scheduled to be nationwide by the first quarter of 2012,’ it added.
LTE is widely seen as the successor to the third- generation (3G) mobile networks that are in use today.
Its implementation would allow operators to offer blazing cellular data speeds that are more than a hundred times faster than existing 3G technologies.
M1’s new LTE network will initially boast download speeds of 75 Mbps (megabits per second), a four-fold improvement over the fastest mobile broadband plan being offered today.
By the end of next year, LTE download speeds will be doubled to 150 Mbps.
The network’s upload speeds will correspondingly be boosted from 37.5 Mbps currently to 75 Mbps, M1 said.
The company will initially offer its new LTE service to enterprise customers who are already on its mobile broadband plans.
For a monthly fee of $59.40, these subscribers will get a token-like USB modem to enjoy speedier surfing on their laptops within the areas of coverage.
More LTE-compliant devices such as tablets and smart phones are expected to be available later this year.
Singapore Telecommunications and StarHub will both roll out their LTE networks later this year.
To accommodate the upgrade, the Infocomm Development Authority of Singapore has already set aside two mobile frequency spectrums – the 2.3 and 2.5 GHz (gigahertz) band and the 900 and 1800 MHz (megahertz) band – for operators to boost their cellular bandwidth.
SATS – OCBC
New competition unlikely to affect SATS
Third ground handling license at Changi Airport awarded. Changi Airport Group (CAG) recently announced that it awarded a third ground handling license (for 10 years) at Singapore Changi Airport to US-based Aircraft Service International Group (ASIG). ASIG will now compete with SATS Ltd and Changi International Airport Services (CIAS) for airline customers in both full service and low-cost carrier segments to provide quality and cost competition for services that include passenger and cargo handling servicing, and ramp handling. In operation since 1947, ASIG has a wide portfolio of airline customers both in the US and Europe that include Vigin Atlantic, JetBlue and Ryanair. It also currently has refueling operations at Suvarnabhumi Airport in Bangkok. The third license comes two years following Swissport International’s withdrawal of operations in Apr 2009 after sustaining losses in excess of US$50m over its four years of operations.
Price competition expected going forward. Based on precedence, we expect the two existing players to pose stiff competition to ASIG. In a press release issued by the Civil Aviation Authority of Singapore (CAAS) back in 2009 when Swissport withdraw its operations, it noted that ground handling rates fell by an average of 15% during the time Swissport was in operations. In a Business Times article on 31 Mar 2008, Swissport blamed “massive undercutting” as one of the key challenges it faced, although the allegations were refuted by its rivals. The re-emergence of a new handler will likely reignite and re-energize competition, and will provide airlines with more options as well as increase their leverage in price negotiations.
SATS to maintain dominance but will face some price pressures. As the dominant player, SATS controls about 80% of the business in Changi. While we anticipate some potential customer losses and potential reduction in ground handling rates, we believe that its regional size advantage and operational experience will not only allow it to survive any price competitions but also to dictate the extent of any potential price reductions. As such, we expect similar reduction of ground handling rates of about 15% going forward once ASIG commences operations, especially given the somewhat stagnant global economic recovery where passenger traffic maybe affected in the near- to medium-term. Besides size advantage, SATS also provides a wide range of unique and integrated services that differentiates itself from its competition and may promote customer loyalty. This market leadership should continue to favour SATS in the face of new competition. We fine-tuned our fair value estimate to S$3.02 (S$3.06 previously) to incorporate anticipated price competition and maintain our BUY rating.