Author: tfwee
SingTel – OCBC
Affirms FY10 guidance
Good start to FY10. SingTel reported its 1HFY10 results this morning, which came in ahead of our expectations. Revenue grew 1.9% YoY and 7.9% QoQ to S$3847.7m, meeting 26.1% of our FY10 forecast, while net profit came in at S$945.4m, up 7.7% YoY and 4.6% QoQ, meeting nearly 27.3% of our full-year estimate. Operating EBITDA margin was stable at 29.3%, versus 30.3% in 1QFY09 and 32.2% in 4QFY09.
Singapore operations did well again. Its Singapore business delivered a relatively strong quarter, with operating revenue up 10.3% YoY; main growth came from its IT and Engineering business, which jumped 50% YoY, which included the first-time rollout revenue (S$14m) from OpenNet and the recently-acquired SCS. Its mainstay Mobile business rose 3.6% YoY, driven by growth in data and mobile. Operational EBITDA margin was flat at 41.8% as improved margin at its telco business was diluted by increased revenue contribution from its IT and Engineering business. Going forward, SingTel continues to expect Singapore’s operating revenue to grow at single-digit level; EBITDA margin to remain stable around 36-38%; capex below S$800m; free cashflow to decline slightly.
Australia saw EBITDA margin squeeze. SingTel’s Australia business saw a 12.4% YoY rise in operating revenue, aided by strong mobile revenue growth (+20.6%) as the popularity of the Apple iPhone continued through the quarter. However, due to the iPhone promotions/recontracts, Mobile EBITDA margins slipped by 5ppt to 25%; but management see it as a near-term trade-off to get more higher-value customers. We note that on the corporate side, Optus has also won several big contracts and we expect them to continue to gain traction in this area. For the rest of FY10, SingTel expects Australia’s operating revenue and EBITDA to grow at low singledigit levels; capex around A$1.1b; free cashflow to be stable.
Maintain BUY and S$3.51 fair value. For its associates, SingTel expects both Bharti and Telkomsel (its two largest contributors) earnings to grow in local terms, although it notes that ordinary dividend will be lower. Nevertheless, we continue to expect SingTel to pay out between 45% and 60% of its recurring earnings as dividend this year. While we are keeping our FY10 estimates unchanged, our SOTP fair value rises from S$3.49 to S$3.51 to reflect the higher equity value of its regional associates. Maintain BUY.
SingTel – CIMB
Strong performance by Telkomsel
• In line. SingTel’s 1QFY10, when annualised is in line with both CIMB and consensus expectations, both at -0.1% variance respectively. The key features of the results are a strong rebound in margins from Singapore but offset by an equally weak margin from Australia, and strong growth from the associates.
• Strong margin in Singapore. SingTel Singapore’s revenue declined 5% qoq due to a seasonally weaker contribution from the lower-margin IT businesses. This also led to a 4.1% pt qoq rebound in margins. All in, Singapore appears to be trending in line with our forecast.
• High SAC in Australia. The reverse happened at Optus where it saw a 16.7% qoq surge in revenue driven by strong subscriber growth and a 10% qoq appreciation of the A$ vs the S$. A strong take-up of the iPhone led to higher subsidies, which resulted in a 5.9% pt decline in EBITDA margin to 21.3%, its lowest ever.
• Telkomsel was the star. Associate contribution surged 22% qoq, driven by: 1) a 50% qoq jump in Telkomsel’s contribution on the back of its operational strength and 7% qoq increase in the Rupiah, and 2) 21% increase in Bharti’s contribution. Losses from Warid and PBTL were also lower.
• Muted guidance for FY10. SingTel’s guidance was not surprising and very general. It expects Singapore revenue to groww at a single digit level with EBITDA margins at 36-38% vs 37% in FY09. FCF excluding dividends is expected to decline slightly. Similarly, Optus’s revenue and EBITDA are expected to grow at a low single digit level while FCF should be stable. The key drivers are the associates where Telkomsel and Bharti are expected to grow in local currency terms, but dividends from associates are expected to be lower. All in, it appears that FCF should be lower yoy.
• Maintaining recommendation and target price. We are reiterating our UNDERPERFORM recommendation with an unchanged SOP-based target price of S$3.20. We are likely to tweak our numbers upwards a little on the back of our recent upgrade of Telkom Indonesia/Telkomsel’s numbers.
SingPost – OCBC
Strong breakout positive
Likely more upside. SingPost has staged a strong break above the previous 2009 high of $0.94 yesterday on heavy volume and this bodes well for the stock.
Initial resistance at $1.00. Should it be able to hold above this new resistance-turned-support, we expect the stock to try for the resistance at $1.00 (upper boundary of 10-month uptrend channel and key support-turned-resistance level) next; breaking which, we see the subsequent key resistance at $1.05 (minor peaks in Jul and Aug ’08).
RSI in overbought territory. However, with the RSI already showing heavily overbought signals, we would not rule out a nearterm technical correction.
Immediate support at $0.94. Below the immediate support at $0.94, we expect the next support at $0.905 (resistance-turnedsuport level and 50-day MA), ahead of $0.855 (minor troughs in Jul ’09 and lower boundary of 10-month uptrend channel).
M1 – BT
M1 turns subscriber tide in Q2
SINGAPORE’S smallest telco registered the biggest subscriber gain among the three local operators in the second quarter of this year.
MobileOne added 50,000 local mobile customers, while StarHub came in second with a net addition of 34,000 users.
The usual frontrunner – Singapore Telecom – trailed the pack with the addition of only 15,000 new local subscribers.
According to a SingTel statement yesterday, the company’s customer tally was affected by the deactivation of improperly registered pre-paid subscribers during the quarter.
Despite adding 22,000 post-paid users here, the cancellation of 7,000 pre- paid accounts resulted in the net addition of 15,000.
Still, SingTel remains the dominant local player, with a mobile market share of 45.9 per cent.
On the regional front, SingTel – which reports its earnings today – grew its mobile user base sequentially by 12.8 million to end Q2 with 262 million subscribers across the eight markets it operates in.
India’s Bharti continues to be the best performer among SingTel’s six regional associates. Bharti added 8.4 million customers during Q2 to lift its subscriber base past the 100 million mark.
Indonesia’s Telkomsel grew its user base by 3.9 million sequentially, while Globe in the Philippines witnessed a decline of 713,000. Thailand’s AIS gained 320,000 customers in the three months ended June 30.
In Pakistan, Warid added 511,000 subscribers, while Bangladesh’s PBTL registered a sequential increase of 91,000.
SingTel’s Australian unit Optus attracted 213,000 customers in Q2 as a result of the strong demand for Apple’s iPhone and attractive subscription plans, the operator said.
Industry observers say SingTel’s subscriber base in Singapore and Australia could swell further in the current quarter with the launch of the beefed-up iPhone 3GS last month.
Due to supply constraints, BT understands the initial shipment of the new touchscreen handset has almost sold out in Singapore and a similar shortage appears to have surfaced in Australia.
The iPhone 3GS has turned out to be a bigger hit than its predecessors since it debuted on June 19 in eight countries. More than a million units flew off the shelves during the launch weekend alone.
StarHub – BT
StarHub special payout on the cards
STARHUB has been quietly building its cash reserves even as credit streams dried up for many companies during the economic downturn. But with its coffers now swelling past normal levels, the market is starting to expect more active capital management measures from the telco once borrowing costs return to pre-crisis levels. If this happens within the next quarter, StarHub shareholders could well be on the receiving end of a small windfall.
Telcos like StarHub have the benefit of strong cashflows even in times of economic weakness as most customers will still keep their phone lines and Internet connections. While there are some signs of a migration to lower-end broadband plans, the operator’s second-quarter earnings still registered a very respectable 21 per cent improvement to $77.8 million. The company also generated a free cash flow of $263 million for the first six months of the year, a 54.8 per cent jump from a year earlier.
With StarHub choosing not to refinance some of its debt in view of higher borrowing costs, the telco’s leverage, or net-debt-to-Ebitda (earnings before interest, taxes, depreciation, and amortisation) ratio, has fallen to a new low of 1.07 times.
StarHub has always maintained that its optimal net-debt-to-Ebitda ratio is 1.5-2 times. During its earnings conference call last week, CEO Terry Clontz also hinted that the company would look into ways of making its ‘capital structure more efficient’ when credit markets return to normal.
The writing’s clearly on the wall that some form of capital management measure is in the pipeline, but the question is what form it would take.
Shareholders will clearly prefer a special dividend payout as the way to return the excess cash, although the company has no history of taking this route.
According to DMG & Partners head of research Terence Wong, the special payout could amount to 12 cents per share or an additional 5 per cent return on top of StarHub’s already sizeable 8 per cent yield.
However, based on StarHub’s track record, a share buyback or capital reduction could be the more probable option.
Apart from the associated tax incentives, such moves would help to improve earnings per share and return on equity, two common yardsticks for measuring financial performance.
Capital reduction
In 2006, StarHub returned $652 million in cash to shareholders through a capital reduction, cancelling 306 million shares or 14.3 per cent of its issued share capital at the time. The move boosted its return on equity from 23 per cent to 67 per cent as profits were divided by a smaller share capital.
A year later, the operator repeated the exercise by distributing a cash stockpile of $444 million. As a result, its share capital was reduced by another 8.3 per cent. Rivals Singapore Telecommunications and MobileOne have also returned cash to investors by cancelling stock.
Alternatively, StarHub could choose to raise its full-year dividend payout beyond its commitment of 18 cents.
Whatever the form, shareholders are far more likely to receive a small windfall from StarHub rather than a huge one, given that the future is still uncertain.
While the telco will be keen to please shareholders, it will want to maintain some flexibility in terms of capital utilisation.
Top on the list is the $100 million in cash it will sink into its new subsidiary Nucleus Connect over the next five years. This company has been selected by the government to operate Singapore’s upcoming fibre-optic broadband highway, and to resell bandwidth to Internet service providers. Once the new network is in place, competition in StarHub’s pay-TV and broadband markets can be expected to intensify.
Still, even if it turns out to be a small payout, investors should have no reason to complain. While more would have been better, having half a loaf in these volatile times is way better than having none.