Author: tfwee
StarHub – CIMB
ARPU growth story
ARPU growth story
We have updated our postpaid mobile ARPU assumptions to reflect our view that StarHub is poised to enjoy postpaid mobile ARPU growth from the successful take-up of MaxMobile (Singapore’s fastest wireless broadband service with exclusive BPL content) as well as recent innovative roaming plans, e.g. OneSIM Indosat roaming service and pay-per-day data roaming flat-rate service under the Conexus Mobile Alliance.
While we maintain our ARPU assumptions for pay TV, we believe there is scope for upside surprise in 2008. The potential surprise is likely to come from increased sales of add-on packages from a rejuvenated program offering. The sports channel repricing that took effect from October 2007 has been factored into our assumptions.
Poised to ride on population growth
We have also raised our subscriber growth estimates for StarHub to reflect our view of robust immigration flow into Singapore and expectation for StarHub to get more aggressive in defending its mobile subscriber market share at around 33%. We have gained greater confidence in StarHub’s will to defend its market share following our recent discussion with management and on-the-ground observation of promotional activities.
Valuation and recommendation
Maintain Outperform with higher target price of S$3.76. Earnings for FY07-09 are raised by 1-5% to reflect postpaid ARPU growth opportunities and a more robust subscriber growth from Singapore’s immigrant boom. Accordingly, our DCF-based (WACC: 6.9%, terminal growth: 1%) target price goes up to S$3.76 from S$3.66. Riskreward looks compelling with downside risk limited by hefty yield of over 10% and share buybacks at below S$3.00. StarHub is our top pick for the Singapore telco sector for having the best exposure to telco service consumption growth in Singapore on the back of an immigrant boom and the fastest wage growth in seven years. StarHub continues to be the best-in-class triple-play operator and enjoys distinct advantages in terms of exclusive content (e.g. BPL) and the fastest wireless and wired broadband access in Singapore.
M1 – CIMB
Market share erosion on SingTel assault
Market share erosion to persist
We have updated our subscriber market share assumptions to reflect our view that SingTel remains focused as aggressor in Singapore’s mobile market and is poised to gain further market share in terms of subscriber but this will come primarily at M1’s expense. However, we believe the pace of SingTel’s subscriber market share gains should slow in 2008 as we expect StarHub to defend its subscriber market share more aggressively.
We believe that SingTel’s bundling strategy is an offensive strategy (customer acquisition) against M1 which lacks bundling capability but is a defensive strategy (customer retention) against StarHub. This is likely to result in SingTel gaining postpaid mobile subscriber share from M1. We also expect SingTel to use price as a competitive weapon to capture prepaid market share with M1 bearing the brunt of such as a move.
Valuation and recommendation
Maintain Neutral with reduced target price of S$2.29. Our earnings estimates are reduced by 0.5-1.8% for FY07-09 as a result of our revised markets share assumptions. This lowers our DCF (WACC: 7.9%, Terminal growth: 1%) valuation to S$2.29 from S$2.40 previously. While downside risk for M1 is limited by potential yield of over 8%, M1 lacks upside catalysts as it continues to face increasing competitive pressure from SingTel and StarHub. Visibility of NGNBN growth opportunities is low at this juncture and we do not see compelling reasons for M1 to be an M&A target.
SingTel – CIMB
Market share gainer at M1’s expense
Gaining market share at M1’s expense
We have updated our subscriber market share assumptions to reflect our view that SingTel remains focused as aggressor in Singapore’s mobile market and is poised to gain further market share in terms of subscriber but this will come primarily at M1’s expense. However, we believe the pace of SingTel’s subscriber market share gains should slow in 2008 as we expect StarHub to defend its subscriber market share more aggressively.
We believe that SingTel’s bundled offerings is an offensive strategy (customer acquisition) against M1 which lacks bundling capability but is a defensive strategy (customer retention) against StarHub. This is likely to result in SingTel gaining postpaid mobile subscriber share from M1. We expect StarHub to defend its market share more aggressively from 4Q07 going into 2008 with active promotions around bundling but will remain selective in targeting higher-ARPU postpaid subscribers.
Valuation and recommendation
Maintain Outperform with slightly higher target price of S$4.55. Our earnings estimates are tweaked higher by less by 1% as a result of our revised markets share assumptions for Singapore mobile operations. This nudges our sum-of-parts valuation up to S$4.55 from S$4.54. We continue to like SingTel for its rejuvenated Singapore operations and reliable earnings growth from Bharti and Telkomsel.
SPAusNet – BT
SP AusNet drops plan to buy Alinta assets
Higher cost of funding would hit its ability to meet forecasts
THE credit market turmoil has claimed another victim. Singapore Power’s plan to offload its A$8.3 billion (S$10.5 billion) Alinta acquisition to listed SP AusNet is now off as it has become too expensive and could affect the latter’s cashflow and distribution to unitholders.
Singapore Power chief financial officer Yap Chee Keong said the energy company will explore all options for Alinta and will proceed with a refinancing plan.
After the announcement that the deal was off, SP AusNet shareholders who had been scheduled to vote on the deal today cheered, and the security yesterday shot up 5.34 per cent or eight cents to $1.58. SP AusNet, listed in Australia and Singapore since Dec 2005, is 51 per cent owned by Singapore Power. In Australia, SP AusNet surged a bigger 8.4 per cent to A$1.285 from its Friday close of A$1.19. The SP AusNet board said in a statement said that ongoing deterioration in the debt and equity markets would have affected its ability to achieve the forecasts if it decided to go ahead with the transaction, which was at the same price as Singapore Power paid in August.
If the deal had gone through, SP AusNet would have become Australia’s largest energy and infrastructure group. But the higher cost of funding would have hit SP AusNet profits and its cashflow, which could affect the distribution of dividends to unitholders.
Analysts had also raised concerns about SP AusNet buying Alinta assets, given the high price that was paid by the then consortium of Singapore Power and investment firm Babcock & Brown. The consortium had to fend off a Macquarie Bank rival bid with an offer of about A$15.46 a share, which was 43 per cent above the average price of the stock prior to the Jan 9 announcement of a buyout proposal.
In yesterday’s statement, SP AusNet said: ‘The board has noted the ongoing deterioration in capital markets, in particular debt capital markets, since the Explanatory Memorandum was released. Current conditions would have a material impact on the overall transaction metrics, as well as SP AusNet’s ability to achieve the forecasts provided in the Explanatory Memorandum.’
SP AusNet chairman Ng Kee Choe said: ‘The management team has spent considerable time with our existing and potential new securityholders since the release of the Explanatory Memorandum in November and the board acknowledges that investors have had mixed views on the proposed acquisition.’
A SP AusNet spokeswoman told BT that since the end of October funding cost has risen 60-80 basis points, or 0.6 to 0.8 per cent. ‘In addition, the volatility in the equity market would have meant we would have had to issue at a lower price,’ she said.
The board had promised that a rights issue to help pay for Alinta would not be below A$1.10 per unit.
The plan was for SP AusNet to borrow A$5 billion-A$5.3 billion from the debt market and have a rights issue of around A$3 billion. Singapore Power would have subscribed for its 51 per cent entitlement.
‘Obviously, we are disappointed with this outcome. However, the strong fundamentals of our existing business position us well for future growth and we aim to continue to provide a stable and sustainable investment for securityholders today and into the future,’ Mr Ng said.
Ian Renard, chairman of the independent directors’ committee, said: ‘While the decision to not proceed was a difficult one, it reflects an open, rigorous and transparent process.’
SP AusNet yesterday maintained its 2007-08 full year distribution guidance of 11.55 Australian cents. It said the 2008-09 forecast of 11.80 Australian cents remains applicable.
Costs incurred on the transaction, estimated at A$26 million, will be expensed to the profit and loss in the 2007-08 full year financial statements.
Singapore Power said in a separate statement that for the time being it will manage the Alinta assets as a separate entity and will continue to work closely with SP AusNet to achieve synergies and explore growth opportunities.
Mr Yap said SP is not in a rush to sell Alinta and ‘will explore all options to maximise shareholder value’. He added that SP, whose credit is rated as AA, is able to access the capital market and will now proceed with a refinancing plan. ‘Investors are still willing to invest in companies of high quality,’ said Mr Yap.
SPH – UOBKH
Great tidings of Christmas indulgence
Bumper page-count suggests strong advertising revenue growth. Last Saturday issue of The Straits Times totalled 304 pages. Compared to the corresponding Saturday of Dec 06 (totalling 270 pages), this suggests a bumper advertising revenue (AR) growth of 12% yoy, driven by a strong display advertising growth of 11% yoy. We understand from SPH, advertisers have stepped up their festive season’s advertising expenditure well ahead of Christmas in anticipation of a much stronger consumer spending this year compared to last year. With a robust domestic economy, full employment, large year-end bonuses, a buoyant consumer confidence and higher tourist arrivals, retailers are looking forward to strong sales in the upcoming festive season.
Sustained strong AR growth into FY08. Our page-counts of The Straits Times, the bellwether of Singapore’s advertising expenditure, for Oct 07 and Nov 07 are indicating robust AR growth of 6% and 7% respectively. Separately, ACNielsen data is suggesting a healthy AR growth of 5% in Oct 07. SPH’s AR moved out of the doldrums in 2HFY07. The company’s overall AR growth improved from 2.1% in 1QFY07 to 3.9%, 10.2% and 10.7% in 2QFY07, 3QFY07 and 4QFY07, respectively. Display AR growth improved from a contraction of 1.3% in 1QFY07 to 4.3%, 11.7% and 9.4% for 2QFY07, 3QFY07 and 4QFY07 respectively while classified AR growth fluctuated from 7.9% to 3.2%, 9.1% and 13.9% respectively. Our page-counts of The Straits Times suggest that the strong AR growth in 2HFY07 has filtered into 1HFY08.
SPH’s AR growth is now in sync with Singapore’s GDP growth, as domestic consumer spending has finally picked up whereas previously, growth was driven by the external sector. SPH’s AR growth has benefitted from more advertising by retailers and an active domestic property sector. The heavy primary residential property launches over the last 2-3 years is now leading to a rise in residential property sub-sales, which is contributing to more classified ads.
SPH is a good defensive stock in times of uncertainty. SPH’s core fundamentals are now supported by a healthy AR growth, Paragon Shopping Mall’s rising rentals on the back of rising rentals in prime shopping locations in Singapore, full-year earnings contributions from Sky@eleven and a high annual net dividend yield of 6-7% p.a. Maintain BUY and our target price of S$5.40 (based on our sum-of-the-parts valuation of S$5.40/share).