Author: kktan
StarHub – AmFraser
Pay TV and broadband churns, more competition in 2H10
• StarHub Ltd’s 2Q10 results were in line with expectations, we maintain a full year net profit fall of 16% YoY, with fair value at S$1.88 and a SELL rating.
• 2QFY10 net profit fell 25% YoY to S$58.1mil, bringing 1HFY10’s fall to 37% YoY. Expenses mainly outpaced revenue.
• Higher mobile subscriber acquisition costs at S$109 in 2QFY10 (versus S$79 in 2QFY09) and higher content costs from FIFA World Cup in June dragged earnings. StarHub launched iPhones on 9 December 2009, pursuing a high-end handset sales strategy.
• EBITDA margins on service revenues of 26% in 2QFY10 and 24% in 1HFY10 were much lower than 31.5% and 32% for the previous corresponding periods, respectively. As in 1QFY10, management claims the hit was due to one-off effects and guides for 28% in FY10F.
• At topline, mobile services grew 8% YoY in 2QFY10 (making up 54% of service revenues), and helped boost total service revenues up 5% YoY. Mobile subscriber growth was a healthy 11% YoY to a base of 2.1 million. Postpaid ARPU held up well at S$70, though prepaid ARPU eroded to S$21, against S$69 and S$23 achieved in FY09 respectively.
• With loss of media rights to Barclays Premier League (BPL), Pay TV segment has started to show initial effects. Churn rose to 1.2% from previous norm of 0.9%- 1%, and 2QFY10 as the first quarter showed no incremental adds in subscriber base. ARPU was up by S$1 from 1QFY10 to S$56 – but this boost was driven only by subscriptions to FIFA World Cup for June- July.
• Worst is yet to come from the end of BPL in 2H 2010 – we are expecting 10% of subscribers to drop out, and ARPU to end at S$48 for FY10F and S$43 for FY11F. However, 2H 2010 will see the effect of lower cost of TV content upon the expiry of BPL contract. As such, this will spur a recovery in EBITDA margins.
• Competition ahead of NGNBN launch continues to take its toll on cable broadband. Despite increased discounts and shift in mix to more lower value plans, there were no incremental adds to subscriber base – with churn rising to a new quarterly high at 1.6%.
• Despite the commercial launch of Nucleus Connect (wholesale operator in NGNBN) in 2H 2010, we think it is early days yet – to expect a big impact near term. All in, management is guiding for low single digit topline growth for FY10F.
• Management expects to maintain DPS of 5 cents Singapore per quarter. This puts current yield at attractive 9% p.a. However, with payout ratio exceeding 100% and projected Net Debt/EBITDA rising to 1.5x in FY11F, we feel maintaining DPS would be most challenging. With 20% share price downside till fair value, yield will be wiped out.
SMRT – BT
Rough ride over the next year for SMRT
SMRT Corp’s first-quarter results may be setting the stage for the year ahead – one potentially fraught with continuing losses from its Circle Line operations and rising costs putting the squeeze on profit margins.
For its fiscal first quarter ended June 30, SMRT registered a 20.7 per cent fall in net profit to $38.24 million, despite revenue rising 9 per cent to $235.34 million. SMRT has also cautioned that it may not be able to maintain FY2010’s profitability for the current financial year ending March 31, 2011.
SMRT’s shares closed at $2.05 yesterday, having shed 17 cents since July 30, when it closed at $2.22.
Since the debut of the Circle Line, ridership on the new line has risen from a daily average of 124,000 to nearly 145,000, though the break-even target lies at about 200,000.
SMRT expects Circle Line ridership to improve, but the line will continue to operate at a significant loss over the next 12 months, it has said.
As further phases to the line are launched, the Circle Line will rack up additional expenditure in terms of staff and related costs as well as energy expenses, which will mean further cost pressures.
DMG Research pointed out in a report earlier this week that ‘CCL operations could remain a drag on earnings for FY11-12, considering that Stages 4-5 will only be completed in 2H11 (SMRT’s FY12), and may require a period of gestation to provide any possible accretion to SMRT’s bottom line’.
Costs were another bugbear for the transport company during the quarter, as electricity and diesel expenses shot up 29 per cent to $30.2 million, on the back of higher average tariff and electricity consumption as well as higher diesel prices.
Where diesel costs are concerned, a hedging policy – there is no hedge in place at the moment – may have helped the group better manage the volatility in diesel prices.
While the board has approved a hedging policy, its CFO said in a conference call last week that when the policy is implemented will depend on how diesel prices play out.
Where electricity is concerned, SMRT has a one-year fixed-rate contract in place that expires in September. It is currently ‘monitoring electricity prices and will assess (its) options’, an SMRT spokesman said.
According to a Nomura report, a 5 per cent increase in staff costs would translate to a 7-8.5 per cent decline in group Ebit (earnings before interest and taxes), while a 5 per cent rise in electricity and diesel costs was estimated to result in a 2.5-3.5 per cent decline in group Ebit.
Not helping the situation is the early termination of its contract to operate and maintain the Palm Jumeirah Monorail in Dubai, a contract which was to expire in 2015.
While the earlier-than-anticipated termination is not expected to have any material impact on SMRT’s consolidated net tangible assets per share and earnings per share for the current financial year, it is seen as a setback to the group’s efforts to grow its operations outside Singapore.
One bright spot for the group, however, is its retail business, which continues to grow, helping to prop up the bottom line.
Both the advertising and rental businesses – which collectively contributed 38 per cent to Q1 operating profit – are flourishing as the economy continues to improve. The new Circle Line stations as well as refurbished train stations will also mean increased lettable space.
Still, even combined, the $17.6 million in operating profit derived from these two businesses trails behind its train segment, which contributed about 60 per cent to Q1 operating profit with some $27.7 million.
Given this, SMRT will need to keep a stricter eye on its core business and work harder at managing costs, in order to better weather the ‘challenging outlook’ it expects over the next 12 months.
SMRT – BT
Rough ride over the next year for SMRT
SMRT Corp’s first-quarter results may be setting the stage for the year ahead – one potentially fraught with continuing losses from its Circle Line operations and rising costs putting the squeeze on profit margins.
For its fiscal first quarter ended June 30, SMRT registered a 20.7 per cent fall in net profit to $38.24 million, despite revenue rising 9 per cent to $235.34 million. SMRT has also cautioned that it may not be able to maintain FY2010’s profitability for the current financial year ending March 31, 2011.
SMRT’s shares closed at $2.05 yesterday, having shed 17 cents since July 30, when it closed at $2.22.
Since the debut of the Circle Line, ridership on the new line has risen from a daily average of 124,000 to nearly 145,000, though the break-even target lies at about 200,000.
SMRT expects Circle Line ridership to improve, but the line will continue to operate at a significant loss over the next 12 months, it has said.
As further phases to the line are launched, the Circle Line will rack up additional expenditure in terms of staff and related costs as well as energy expenses, which will mean further cost pressures.
DMG Research pointed out in a report earlier this week that ‘CCL operations could remain a drag on earnings for FY11-12, considering that Stages 4-5 will only be completed in 2H11 (SMRT’s FY12), and may require a period of gestation to provide any possible accretion to SMRT’s bottom line’.
Costs were another bugbear for the transport company during the quarter, as electricity and diesel expenses shot up 29 per cent to $30.2 million, on the back of higher average tariff and electricity consumption as well as higher diesel prices.
Where diesel costs are concerned, a hedging policy – there is no hedge in place at the moment – may have helped the group better manage the volatility in diesel prices.
While the board has approved a hedging policy, its CFO said in a conference call last week that when the policy is implemented will depend on how diesel prices play out.
Where electricity is concerned, SMRT has a one-year fixed-rate contract in place that expires in September. It is currently ‘monitoring electricity prices and will assess (its) options’, an SMRT spokesman said.
According to a Nomura report, a 5 per cent increase in staff costs would translate to a 7-8.5 per cent decline in group Ebit (earnings before interest and taxes), while a 5 per cent rise in electricity and diesel costs was estimated to result in a 2.5-3.5 per cent decline in group Ebit.
Not helping the situation is the early termination of its contract to operate and maintain the Palm Jumeirah Monorail in Dubai, a contract which was to expire in 2015.
While the earlier-than-anticipated termination is not expected to have any material impact on SMRT’s consolidated net tangible assets per share and earnings per share for the current financial year, it is seen as a setback to the group’s efforts to grow its operations outside Singapore.
One bright spot for the group, however, is its retail business, which continues to grow, helping to prop up the bottom line.
Both the advertising and rental businesses – which collectively contributed 38 per cent to Q1 operating profit – are flourishing as the economy continues to improve. The new Circle Line stations as well as refurbished train stations will also mean increased lettable space.
Still, even combined, the $17.6 million in operating profit derived from these two businesses trails behind its train segment, which contributed about 60 per cent to Q1 operating profit with some $27.7 million.
Given this, SMRT will need to keep a stricter eye on its core business and work harder at managing costs, in order to better weather the ‘challenging outlook’ it expects over the next 12 months.
SingTel – BT
Premier League looms in SingTel’s goalmouth
Come Aug 14, the Barclay’s Premier League (BPL) broadcast on SingTel mio will be a make- or-break event for the operator’s TV service.
SingTel’s three-year-old IPTV (Internet protocol television) network had 155,000 customers at the end of 2009, but this number grew to 200,000 last month, in part due to the telco managing to bag exclusive broadcast rights to the BPL.
But the throngs of viewers tuning in to the BPL may prove to be the acid test for mio, which has suffered a number of outages over the past few months.
In March, a blackout affecting 10,000 customers resulted in SingTel being slapped with a $50,000 fine by the Media Development Authority (MDA).
Last month, viewers complained of poor signal quality during a free movie screening promotion, which SingTel extended in an effort to appease irate callers. mio’s World Cup broadcast was reportedly plagued with the signal getting delayed or going blank altogether.
The operator has also scrambled to complete rollout of the service across the island, which it just completed last week, covering 1.2 million households.
These capacity issues have led some to question mio’s resilience for the upcoming BPL. Last October, SingTel bested pay-TV incumbent StarHub to clinch the exclusive rights to the BPL, for a reported price tag of up to $300 million. Its exclusivity means an unprecedented stream of viewers are expected to tune in for the season kick-off.
Daryl Chiam, senior analyst at IT research firm Canalys, told The Business Times SingTel faces a backlash from the public if its network fails. He was confident that the glitches suffered during the World Cup provided a good ‘learning experience’ for the provider, however.
Adeel Najam, senior industry analyst at research firm Frost & Sullivan, agreed. He said: ‘Service disruption will strain SingTel’s reputation, but (appropriate) compensation would be difficult to speculate.’
He added that IPTV technology itself is mature and able to sustain a large audience if the provider places sufficient bandwidth behind it.
Besides home viewers, a number of local establishments will be screening the BPL matches at their outlets.
Stuart Waterman, marketing manager of Harry’s, which runs a chain of bars in the country, said it plans to screen the BPL at selected venues. ‘We do not have a contingency plan at this stage, as there are obviously no alternatives,’ he said.
The management will take up any issues with outages with SingTel, if they occur, he said.
McDonald’s also plans to screen the BPL at some 30 outlets, according to its communications director Linda Ming.
SingTel corporate communications manager Tricia Lee said the company has doubled its capacity in order to carry out some 800 installations per day to meet demand.
While SingTel has not offered a service guarantee on mio, Ms Lee said it has put in place a set of ‘gold standard’ industry best practices to ensure the best possible set-up.
For each installation, SingTel’s technicians have a ‘comprehensive’ checklist to tick off, and customers who signed up after Aug 1 can expect a call a week after installation to check on any issues.
There might be an alternative for viewers who encounter issues with mio, or who have not signed up for the service.
Local broadcaster MediaCorp has announced that it has secured the live telecast for Aug 8’s FA Community Shield event on its free-to-air Channel 5.
According to sources, it is also in talks to screen some of the BPL matches this season.
SingTel’s recent boost in adoption figures still brings it short of the subscriber numbers of pay-TV incumbent StarHub. At the end of last year, the latter boasted 539,000 households – more than double that of SingTel’s current base.
The two were engaged in a bidding war for the BPL rights, which StarHub previously held. It reportedly paid between $8 million and $15 million in 2006 for the rights.
The intense tussle, however, led to MDA stepping into the fray in March and mandating that pay-TV players cross-carry exclusive content in future. This will apply to deals struck after the mandate, so SingTel still holds the BPL’s exclusive rights till 2013.
StarHub – BT
StarHub’s bottom line kicked by World Cup
Net profit for Q2 drops 25.4% from $77.8m to $58.1m
THE World Cup dealt StarHub a swift kick in the bottom line in the second quarter of this year, along with higher costs from subsidies for the iPhone and other smart phones.
Net profit for the quarter fell 25.4 per cent from $77.8 million to $58.1 million.
Even as operating revenue rose 6.9 per cent to $569.3 million in Q2, it was overshadowed by a 14 per cent – or $60.5 million – increase in operating expenses to $492.3 million.
For H1, net profit was down 37.2 per cent to $100.7 million.
Revenue for the same period rose 6 per cent to $1.13 billion, while operating expenses surged 16 per cent.
Earnings per share for Q2 and H1 were 3.39 cents and 5.87 cents respectively, down from 4.55 cents and 9.37 cents for the corresponding periods a year ago.
In May this year, StarHub and SingTel reached a deal with Fifa over the broadcast rights for the World Cup event, for an undisclosed sum.
While Fifa had put a $40 million price tag on the rights, speculation then had pegged the final sum to be about half that.
According to StarHub, the cost of the broadcast rights were expensed based on the number of matches aired.
With 56 out of 64 matches aired in June and the remainder in July, the bulk of the rights has been expensed for Q2.
Its cable television revenue for the quarter, however, grew the most across StarHub’s segments, with a 9 per cent rise to $109.6 million, year-on-year.
Excluding the revenue from the World Cup, average revenue per user per month would have been $2 lower in Q2, at $54.
StarHub’s mobile services revenue grew 8.2 per cent in Q2, year-on-year, to $294 million, while its fixed networks services revenue managed a 2.1 per cent increase to $81.6 million.
The broadband segment was the only one to shrink, its revenue dipping 1.8 per cent to $59.2 million.
The group is expecting to turn a corner on the subsidies for iPhones and other smart phones that have ratcheted up costs for both Q1 and Q2.
‘The benefits of the smart phone investments are beginning to come through in the Ebitda margins,’ said Neil Montefiore, StarHub’s chief executive officer.
Ebitda margins in Q2 gained 3.4 percentage points month-on-month, from 22.5 per cent in Q1 to 25.9 per cent.
For FY2010, StarHub expects to maintain an Ebitda margin on service revenue of about 28 per cent.
Its guidance on revenue growth for the year was a little on the conservative side – low single-digit range – partially due to its loss of the English Premier League (EPL) broadcast rights for the next three seasons, starting on Aug 14.
‘After Aug 14, there might be some customers who will want to move from us, but we’re not sure,’ said Mr Montefiore.
In H1, the customer subscriber base for its cable TV service held steady at 541,000 customers in both quarters.
Late last year, it had expected to lose 10 per cent of its cable TV customer base over the EPL loss.
On the controversial cross-carriage mandate front, StarHub said that it had submitted its feedback to the government and was still waiting for the outcome.
The cross-carriage mandate forces operators to share any exclusive content that they sign from March 12.
StarHub is maintaining its cash dividend payout of 5 cents per ordinary share per quarter, 20 cents for FY2010 in total.
The counter closed one cent lower at $2.33 in trading yesterday.