Author: tfwee
M1 – CIMB
Upgrade of wireless broadband speed
Last night, M1 announced that its high speed packet access (HSPA) network has become the first in Singapore and Asia to go live with downlink speed of 14.4 Mbps and uplink speed of 5.76 Mbps following an upgrade to its network. However, M1’s customers would be able to enjoy the top speeds only when supporting devices come on to the market.
M1 will launch two new mobile broadband plans on 8 Nov at S$51.36/month and S$69.30/month. The former plan will provide a downlink speed of 4 Mbps and uplink speed of 1 Mbps while the latter will provide a downlink speed of 7.2 Mbps and uplink speed of 2 Mbps. Existing customers on 3.6 Mbps will be given a free upgrade to the new 7.2 Mbps broadband plan by month-end.
Warfare heated up
Hot on the heels of SingTel and StarHub. The announcement follows hot on the heels of SingTel and StarHub’s recent announcements that they would be upgrading speeds on their wireless broadband plans. StarHub had disclosed that it would be offering faster uplink speeds of 5.76 Mbps by end-December while downlink speeds would be upgraded to 21 Mbps from 14.4 Mbps. Similarly, SingTel would upgrade downlink and uplink speeds to 7.2 Mbps and 1.5 Mbps respectively from 3.6 Mbps for downlink and 384 Kbps for uplink.
Not a surprise. We are not surprised by this latest news as we had felt that M1 would need to respond to its rivals. M1’s latest move raises the competitive heat in wireless broadband where StarHub has been fairly aggressive in offering discounts on subscriptions, even throwing in free wireless modem and subscriptions if one signs up for the higher-speed fixed broadband plans.
No significant impact. We see this more as a defensive move to counter StarHub’s speed advantage in this segment. While the 4 Mbps tariff is attractive and M1 could lure new or poach subscribers, we believe that competitors are likely to react by offering similar or lower rates to match M1’s. Furthermore, it is unlikely that customers will be attracted by the higher speed of 7.2 Mbps as headline tariffs are fairly comparable with those of SingTel or StarHub. While M1 offers certain bundled plans, these cannot compete with its rivals’ more effective bundling or quad play propositions. Lastly, there is still a lack of consumer devices that support such high speeds.
Competing for speed to revive flagging data ARPUs. M1 is also competing for more premium users by offering higher speeds with higher monthly subscriptions in a bid to revive its flagging data ARPUs which dropped to S$28 (-11.1% qoq; -11.7% yoy) in 3Q. We believe this is another means to protect its margins given the higher margins commanded by data services.
Valuation and recommendation
Maintaining earnings forecasts, OUTPERFORM but raising target price. We are leaving our forecasts intact until we see greater traction with its new wireless plans. However, we have raised our DCF-based (WACC 8.3%) target price to S$2.32 for end-CY09 from S$2.24 for end-CY08 as we roll forward our valuation by a year. We keep our OUTPERFORM rating intact as M1 averts a costly bidding warfare, offers the highest yield in the sector and benefits from cost savings from the upgrade to its backhaul. The main share-price trigger here is any capital management initiatives.
StarHub – OCBC
Keeps 7% revenue growth for 2008
Mildly upbeat 3Q08 results. StarHub Ltd posted 3Q08 revenue of S$524.6m, up 2.2% YoY but down 1.3% QoQ; this was about 2.3% and 2.7% short of our estimate and the consensus number, respectively. Although net profit fell 2.3% YoY to S$79.4m, it was up 23.7% QoQ; it was also about 6.0% ahead of our forecast albeit still 3.5% shy of consensus. 9M08 revenue rose 7.9% to S$1,590.9m, meeting 74.3% of our full-year estimate, while net profit fell 3.6% to S$223.7m, or about 74.2% of our FY08 forecast. It also declared a S$0.045 dividend as expected.
Decline in mobile revenue. On the mobile front, StarHub saw revenue fall 0.7% YoY and 1.8% QoQ to S$264.4m. One reason was the 13.4% YoY (+2.1% QoQ) drop in pre-paid revenue following a 71k decline in subscribers – it was a pre-meditated move to stabilise its user base and this resulted in its ARPU (Average Revenue per User) improving back to S$22, up from S$20 in 2Q08, though still much lower than the S$26 in 3Q07. While StarHub added 17k new post-paid customers, ARPU eased from S$77 in 2Q08 (S$79 in 1Q08) to S$74 – 50% of the drop was due to more data-only subscribers and the rest coming from drop in minutes used from 515 in 2Q08 (523 in 1Q08) to 492 per month. It added that it would be keeping a close watch on this as it could be a precursor to further drops as the recession deepens.
Keeps 7% revenue growth guidance. StarHub was able to reduce its average acquisition cost per user back from S$148 in 2Q08 (S$124 in 1Q08) to S$104. While we do expect this number to increase going into the holiday season, management does not expect a big blow-out due to the uncertain economic environment. StarHub also revealed that it will not be launching the Apple iPhone 3G this year and this should also help to keep its handset subsidies in check. However, we do not rule out an increase in churn on this news. Nevertheless, management remains confident that it can maintain its 7% growth guidance for this year.
Keep BUY with S$2.81 fair value. But outlook for 2009 is more uncertain and we have pared our FY09 numbers slightly to adopt a more conservative stance. While this drops our fair value to S$2.81 (prev: S$3.19), we keep our BUY rating due to its attractive dividend yield (7.9% expected for 2009) and its fairly defensive business.
StarHub – DBS
Margins improve, market share declines
Story: 3Q08 net profit came in at S$79.5m (-2% y-o-y, +24%q-oq). Excluding S$3m one-off gains, net profit was within our expectation of S$77m. However, revenue of S$524m was just short of our S$535m estimate, and service EBITDA margin at 32.9% was slightly ahead of our 32% forecast. As expected, an interim 4.5 cents DPS was announced with the results.
Point: Result highlights are as follows:
Positives. (i) Mobile EBITDA margin improved significantly to 39.5% from 32.6% in 2Q08 after StarHub offered lower handset subsidies and free six-months subscriptions. (ii) Cable & broadband EBITDA margins improved to 21.5% from 19.4% in 2Q08, due to absence of one-time cost for Euro Cup content.
Negatives. (i) Third consecutive quarter of revenue contraction. (ii) Mobile market share declined to 28.1% from 29.1% in 2Q08, mainly due to the loss of pre-paid subscribers. (iii) Post-paid mobile ARPU declined further to S$74 from S$77m in 2Q08 due to lower usage and free 6-month subscription plan.
No major risks to FY08 estimates. Management opined that 4Q08 was unlikely to see traditional festive promotions, as Telcos remain cautious of a slowing demand environment. As such, we think StarHub can meet our FY08 forecast, in line with its own guidance.
Downside risks to FY09 estimates. Potential outflow of workers and tourists, lower roaming revenues from corporates and tourists and lower broadband ARPU could lead to a weak FY09 guidance by management at the end of FY08. Although our FY09F earnings are 9% below consensus estimates, we believe there are still downside risks as topline growth can potentially disappoint.
Relevance: We maintain a FULLY VALUED rating for StarHub with a target price of S$2.34 pegged to 13x FY09F PER. This is the low end of its historical PER range of 13x-19x. Our trough valuation is S$1.67 based on 10x worst-case FY09F earnings, assuming Singapore GDP declines 2.2% in 2009. We prefer M1 (BUY, TP S$1.57) for its cheap valuations, low expectations and over 9% dividend yield.
SingTel – BT
SingTel to hang on to iPhone monopoly
SINGAPORE Telecommunications will continue to be the only local telco to be given a bite at the iPhone 3G as a change in Apple’s distribution strategy has thwarted the year-end launch plans of rivals StarHub and MobileOne.
‘As we have been advised that there has been a change in the distribution schedule of the iPhone in Asia, this is likely to affect M1’s plans to sell the device by the end of the year,’ a company spokesman told BT.
Similarly, StarHub also confirmed that it will not be able to bring in the second-generation Apple touch-screen handset by 2008.
‘It appears the launch (of the iPhone) will not take place this year. They (Apple) have their priorities for signing on distributors,’ StarHub CEO Terry Clontz told reporters during a phone briefing for the firm’s third-quarter results yesterday.
With Singapore’s small mobile customer base and the existing SingTel agreement, Apple is focusing its efforts on other countries where the iPhone has yet to make its debut, he explained.
Despite this development, Mr Clontz maintained that the iPhone deal is ‘non-exclusive’ here and the coveted gadget will be carried by other operators in future, a move which is consistent with other countries such as Australia and the United States.
Apple ditched its once-exclusive partnership approach when it unveiled the iPhone 3G and started working with multiple players to drive mass consumer take-up of the new device.
When SingTel launched the iPhone locally on Aug 22, both StarHub and M1 said they were confident of breaking the product monopoly by the end of the year and advised consumers to hold out for better deals.
Mr Clontz admitted that StarHub ‘did see an impact’ on its mobile business shortly after SingTel’s iPhone introduction but claims the pent-up demand for the handset has since subsided.
To forestall the competition, SingTel is halving the monthly fees for its iPhone subscription plans in Singapore for three months to draw a second wave of buyers and encourage more defections from rival camps.
StarHub – BT
StarHub Q3 net profit dips 2.1% to $79.5m
Growth strongest for pay-TV business, flat for mobile and broadband units
STARHUB’S third-quarter net profit fell 2.1 per cent to $79.5 million due to higher content costs for its pay-TV business and a flat showing by its mobile and broadband units.
Revenue for the three months ended Sept 30 was 2.3 per cent higher year on year at $524.6 million, but earnings per share slipped to 4.65 cents from 4.78 cents.
StarHub yesterday declared a quarterly dividend of 4.5 cents, unchanged from Q2, and reaffirmed its commitment to pay at least 18 cents in 2008. This translates to a minimum dividend payout of 4.5 cents for the final quarter.
Singapore’s second-largest teleco continues to bear the brunt of soaring content prices for pay-TV, with the cost of services rising 21 per cent year on year to $73.1 million in Q3, which raised operating expenses 3 per cent to $417.6 million.
On the mobile phone front, the promotional frenzy sparked by the introduction of True Mobile Number Portability in the second quarter is easing, according to StarHub CEO Terry Clontz. This led to lower handset subsidies, which consequently reduced the cost of equipment sold by 19 per cent sequentially to $51.7 million.
The pay-TV business registered the strongest growth in Q3, with sales rising 14.7 per cent to $98.4 million. This was largely helped by an increase in subscription prices for basic and sports packages which kicked in late last year. StarHub added 9,000 pay-TV subscribers in Q3 to bring its customer base to 520,000.
Revenue from the mobile phone business slipped 0.7 per cent to $264.4 million during the quarter, with the arrival of the iPhone 3G triggering some customer defections in September, Mr Clontz said. Despite the migration and lower handset subsidies, StarHub added 17,000 post-paid subscribers in the quarter.
It now has 1.74 million mobile customers and a market share of 28.9 per cent, down from 31.9 per cent a year earlier.
StarHub’s broadband revenue rose one per cent in Q3 to $62.6 million, while its fixed network service sales edged up 2.4 per cent to $75.1 million.
The company’s bid for the right to build Singapore’s future Internet highway fell through during the quarter, as the consortium it was spearheading lost out to a rival group involving SingTel.
StarHub’s closing cash and cash equivalents balance at end-September was $126.9 million. After netting this cash balance, the company’s debt was 4 per cent lower at $786.8 million. Its gearing as a ratio of 2007 Ebitda – earnings before interest, tax, depreciation and amortisation – has improved from 1.3 times last year to 1.2 times.
For the first nine months of this year, StarHub recorded a 3.5 per cent drop in net income to $223.9 million, although revenue increased 7.9 per cent to $1.59 billion.
The company is keeping to its full-year sales growth projection of 7 per cent and expects Ebitda to be 31 per cent of revenue.
Despite economic headwinds, StarHub has no plans to introduce new cost-cutting measures. ‘If you look at the past six years, we’ve not increased headcount at all. We’re pretty lean as it is,’ Mr Clontz said.
StarHub shares climbed 3.2 per cent to close at $2.29 yesterday.