Author: tfwee
SingTel – DBS
Bharti retaliates with price cuts
• We lower Bharti’s FY11F earnings by c.7%. Bharti’s consensus FY10F/11F earnings could possibly come down by 10%/19%.
• SingTel’s consensus FY10F earnings look fair but FY11F earnings could be trimmed by 4%.
• SingTel’s TP lowered to s$3.20. Maintain HOLD
Rcom initiated tariff cuts in the first week of October. Rcom cut its tariffs up to 50% under its “Simply Reliance Plan” on long distance and roaming calls. The lower tariffs would particularly hit hard the players – who do not own long distance lines and pan India presence.
Bharti and other players retaliate in the second week of October. We understand that major players like Bharti, Vodafone and Idea have already launched similar plans as Rcom, across various circles without much publicity and fanfare though. Given swift reaction across the board, we see a possibility of intensified battle for market share. We lowered Bharti’s FY11F earnings by 7% as FY11F earnings may see single-digit decline due to c.5 ppt decline in EBITDA margins. Bharti’s FY10F/11F consensus earnings could come down by 10%/19% in our view.
SingTel’s consensus FY10F numbers look all right but consensus FY11F numbers could be revised down. SingTel’s FY10F earnings are unlikely to disappoint due to (i) stronger Aussie dollar and Indonesian Rupiah (ii) strong performance of Telkomsel in Indonesia. However, consensus FY11F numbers may come down by c.4% as street realizes the impact of price wars on Bharti’s FY11F earnings.
SingTel’s FY11F earnings lowered by 3%. We have assumed S$40m loss (about 1% of group earnings) due to high cost of English Premier League (EPL) rights in FY11F. Our SOTP target price is lowered to S$3.20 as we lowered our fair value of Bharti by 8% to Rs 345 based on 15x FY10F earnings.
M1 – DBS
Consistent strategy but sector woes
• Lower data pricing and discounts on mobile services are being offered in the market now.
• M1 may find it difficult to compete in the mobile and broadband segments, given rising competitive intensity in the sector. Our FY10F earnings lowered by 6% due to higher opex.
• M1 has outperformed STI by 8% since our upgrade on 22 Jun 09. Downgrade to HOLD with revised TP of S$1.95
Intense competition in the post-paid mobile segment. We observed that all the telcos are offering 50% discount on their published mobile data plans in order to encourage users to adopt data plans. As a result, ARPU may not rise much, while network capex may rise substantially, as data traffic typically consumes manifold network capacity than voice traffic. In addition, M1 and StarHub, on top of the usual handset subsidy, are offering discount of S$100 to the customers who switch from other operators. This may adversely impact the margins of the telcos.
Higher competition may be a trend, not an occasional spike. We see competitive intensity going up rather than coming down in 2010. SingTel’s EPL pricing of S$23/month (compared to StarHub’s min s$25) despite higher content cost vindicates our fear of aggressive customer acquisition targets. Recently, M1 secured iPhone deal and raised its FY09F capex by 20%, indicating an aggressive agenda ahead. StarHub faces an uphill task of defending its mobile and broadband market share, while realizing that pay TV market share is liklely to decline next year. Our FY10F earnings lowered by 6% due to higher opex. Our target price is S$1.95, still pegged to 12x average FY10F EPS. The stock trades at reasonable 7.3% yield for stable earnings prospects. With higher capex requirements, we see lower possibility of capital management in FY10F.
SingTel – OCBC
Game Changer in Pay TV Arena
Game changer in pay-TV segment. To the surprise of many, SingTel managed to clinch the 2010-2012 broadcast rights for the English Premier League from the incumbent StarHub [under review]; this after just one round of bidding, which suggests that SingTel may have paid handsomely for these rights. We had previously expected StarHub to retain these rights and SingTel to only bid for it more aggressively come 2012 when the NBN fully comes on stream. In addition, SingTel has scored another coup over StarHub by securing the exclusive broadcast rights to a suite of sports networks and services from ESPN STAR Sports (ESS) from mid-2010 – this will add more sports content to SingTel’s fledging mioTV line up.
Lowers EPL viewing prices. And SingTel has also announced the EPL sports package rates – it intends to charge S$23 (before GST) per month and pay another S$2 more, subscribers will be able to get additional ESS channels for events such as Formula 1, Australian Open, Wimbledon and US Open Golf Championship. Consumers also do not need to fork out extra for a basic pay-TV package or for set-top box rental, as it is the case for current sports subscribers under StarHub’s deal. However, SingTel has the option to revise its sports pricing for the subsequent seasons; but we believe it remains unlikely that SingTel can recoup the EPL cost via pay- TV subscriptions alone.
Loses iPhone monopoly status. Meanwhile in the mobile segment, competitor MobileOne (M1) has managed to chip away at SingTel’s stranglehold on the Apple iPhone; M1 will also sell the popular smartphone some time later this year but it has yet to announce the pricing details. Overall, we do not expect the move to have a significant impact on SingTel’s bottom line nor meaningfully erode its market share (46.0% as of end Jun 09).
Maintain BUY with S$3.51 fair value. Overall, we believe that the developments in the pay-TV space are positive for SingTel – especially as it works towards “stickiness” ahead of the NBN launch. This is also in line with SingTel’s vision to transform itself from a traditional telco into a leading multi-media solutions provider. With its 2QFY10 results just around the corner, we hold off revising our estimates. However, we continue to favour SingTel’s defensive earnings and potential to expand regionally. Maintain BUY with S$3.51 fair value.
M1 – Phillip
3Q09 results
3Q09 results. For 3Q09, M1 reported operating revenue of S$188.4m (-4.2% yoy) and net profit of S$34.2m (-0.7% yoy).
Mobile telecommunications services and international call services posted decline in revenue to S$140.8m (-5.6% yoy) and S$31.8m (-1.6% yoy) respectively. Mobile telecommunications revenue fell due to the competitive tariff and bundling discounts. For international call services, it was because of the decrease in roaming traffic. Meanwhile, fixed network services reported revenue of S$0.6m. Moreover, handset sales increased slightly to S$15.3m (+0.4% yoy) because of higher sales volume.
In line with revenue, operating expenses was also lower at S$146.1m (-4.4% yoy) because staff cost, facilities expenses, provision for doubtful debts and other general and administrative expenses declined.
M1’s net profit decreased slightly as revenue fell more than operating expenses.
Profit margin. Because of lower revenue, the net profit margin was lesser at 18.2% in 3Q09 compared to 19.5% in 2Q09. However, the net profit margin of 18.2% in 3Q09 was higher than 17.5% in 3Q08 as a result of lower operating expenses.
Mixed results for market share in 3Q09. The number of post-paid customers rose by 0.8% from 886,000 in 2Q09 to 893,000 in 3Q09. However, its post-paid market share fell from 26.5% in 2Q09 to 26.0% in 3Q09. Furthermore, the number of prepaid customers rose by 5.2% from 783,000 in 2Q09 to 824,000 in 3Q09. This caused its pre-paid market share to improve from 24.5% in 2Q09 to 25.0% in 3Q09. We feel that M1 should continue to work on improving its post-paid market share against bigger rivals SingTel and StarHub through innovative products, advertising and promotion programs as well as attractive discounts.
Outlook for FY2009. M1 highlights that operating conditions remain challenging despite the recovery of the global economy. It mentions that operating revenue remains under pressure. Nevertheless, it anticipates net profit to be comparable to 2008. It will offer iPhone by the end of the year and we expect this to help M1 achieve a larger increase in the number of post-paid customers.
Maintain Hold with fair value at S$1.78. We have a hold recommendation as M1 is likely to achieve limited growth in the local telecommunications market. Using the free cash flow to firm model, we derive a fair value of S$1.78. The dividend yield for the stock is 7.2%.
M1 – CIMB
Disappointing 3Q09
• Maintain NEUTRAL. As we raise our capex assumptions to bring them in line with M1’s latest guidance, our earnings forecasts drop by 0.7-1.5% for FY09-11. Our DCF-based target price, however, rises to S$2.07 (WACC 9.5%, LT growth 1.0%) from S$2.00 as we adopt a lower 10% (11% before) capital-intensity forecast for FY11 onwards. Maintain NEUTRAL as we continue to see a lack of catalysts. This is counterbalanced by M1’s 7% yields, upside from NGNBN and M1’s best exposure to wireless broadband. While management is coy, we believe that capital management will occur in FY10. We raise our DPS forecast for FY10 to 38 cts/share from 14.7 cts/share translating into yields of 20.5% from 7.8% before. This is based on 1.0x net debt/EBITDA which is consistent with past practice.
• In line. 9M09 results were in line at 74% and 73% of our full-year forecast and consensus respectively. While in line, 3Q09 was disappointing on three counts: weaker revenue and margins qoq and higher churns. No dividend was declared, as expected. We have trimmed our earnings forecasts by 0.7-1.5% for FY09-11 as we incorporate higher capex assumptions.
• Topline reversed course. M1’s topline dropped 1.1% qoq in 3Q09 from +2.2% qoq in 2Q09 because of lower postpaid (-1.1% qoq) and IDD (-3.3% qoq) revenue. Postpaid ARPU contracted 1.3% qoq, affected by competitive tariff plans, bundling discounts and lower roaming which also dented IDD revenues. In spite of a gradual economic recovery, M1 expects near-term revenue to remain under pressure as it has yet to see a firm and sustainable rebound in spending.
• Margins suffered a similar fate. EBITDA margins also drifted down by 1.4% pts qoq because of higher handset costs (17.3% of revenue) from higher volumes sold and higher staff costs (9.9% of revenue).
• Guidance mostly intact. M1 left its guidance for stable PAT yoy intact, but raised its capex budget to around S$120m from S$100m because of a faster rollout of its backhaul upgrade.