Author: tfwee
M1 – BT
New M1 chief sees an old pal at StarHub
A known competitor, says Kooi, as she reports 9.7% fall in M1 net profit for Q2
INSTEAD of hurting MobileOne (M1), having its former chief head rival StarHub could be a boon, says the new chief of Singapore’s smallest operator.
‘We are glad we have a friend in Neil (Montefiore), so we know our competition,’ said M1 CEO Karen Kooi, as she chaired the telco’s second-quarter results tele-conference yesterday for the first time as M1’s new head.
Ms Kooi, formerly M1’s chief financial officer, took over the reins from Mr Montefiore in April, after serving two months as the interim steward. Her former mentor will return to the telco scene as CEO of StarHub next January following the retirement of incumbent chief Terry Clontz.
For the three months ended June 30, M1’s net profit slipped 9.7 per cent to $37.1 million from $41.1 million a year earlier, due to a revenue decline across all major businesses.
Q2 operating revenue fell 7.2 per cent to $190.5 million, from $205.3 million in 2008. Earnings per share came in at 4.1 cents, down from 4.6 cents last year.
M1’s post-paid mobile sales continued to head south in Q2, falling 8.5 per cent to $124 million amid competitive pressure from rivals Singapore Telecom and StarHub, as well as its own bundling discounts. The operator’s pre-paid revenue also slid in Q2 – by 2.2 per cent to $17.5 million.
With customers reining in overseas calls amid the economic crunch, revenue from M1’s international call services fell 13.7 per cent in Q2 to $32.8 million.
While business has declined, a silver lining is that M1’s operating costs have also gone down.
Customer acquisition and retention costs fell 15.6 per cent and 10.2 per cent to $151 and $150 respectively in Q2. In the same period last year, a fierce marketing war prior to the launch of full mobile number portability sent marketing and promotional spending to dizzy heights for all three local operators.
M1’s staff costs fell 18.9 per cent in Q2 to $18 million as a result of lower bonus provision and a cut in headcount.
M1 also staunched bleeding on the subscriber front during the quarter. It gained 50,000 subscribers, lifting its customer tally to 1.67 million. Its churn rate (the percentage of customers leaving) improved marginally to 1.5 per cent, from 1.6 per cent in Q1.
M1, which is Singapore’s smallest telco, has announced an interim dividend of 6.2 cents, unchanged from last year. For first-half 2009, net income fell 0.3 per cent to $78.9 million, while revenue slid 7.9 per cent to $376.9 million.
Ms Kooi said: ‘Operating conditions for the rest of the year are likely to remain challenging. Economic recovery is still uncertain and the flu pandemic may affect customer spending.’
However, M1 still expects to retain its policy of paying 80 per cent of net profit as dividends this year. Based on its first-half performance, full-year net profit ‘is likely to be comparable to 2008’, Ms Kooi said.
M1 shares rose one cent to close at $1.61 yesterday before its Q2 results were released. Rivals StarHub and SingTel will report their earnings on Aug 5 and Aug 13 respectively.
SMRT – DBS
SMRT announces new S&P for 49% stake in Shenzhen Zona
SMRT announced that it has signed a new Sale and Purchase Agreement (SPA) for a 49% stake in Shenzhen Zona for a total consideration of RMB320m (S$68.4m).
This is a new SPA which is slightly different from the previous one signed in Sep 08. The latter which has since lapsed earlier in 2009 as certain conditions precedent were not met. The new SPA is also subject to certain conditions precedent, including receipt of approval from the relevant PRC authorities. Given that this is a second time a SPA is signed, we think the chance of it coming to fruition is likely.
Upon completion of the acquisition, Shenzhen Zona will be an associate of the company. As completion will take several months, the impact on SMRT’s FY10F earnings will not be material. Assuming an acquisition PER of around 8x – 15x, which is similar to regional/global peers trading range, we estimate the profit contribution of this acquisition is around S$4.6m – S$8.6m (or 3%-5%) of SMRT’s Group profit.
As of Dec 08, Shenzhen Zona has a NAV of RMB376.7m, represented by a negative NTA of
RMB48m and Net Intangible Assets of RMB427.7m. The intangible assets largely comprise taxi operating licences acquired through open bids. The acquisition price works out to be around 1.7x P/NAV.
Shenzhen Zona is engaged in the following services:
• Taxi services in Shenzhen, car and bus repair services in Shenzhen and Huizhou,
• car leasing, scheduled coach services from Shenzhen to other cities, tour and chartered coach services within and beyond Shenzhen; and,
• public bus services in Huizhou.
Maintain Hold, TP of S$1.65
StarHub – BT
StarHub’s new CEO has his work cut out
TERRY Clontz’s appointment as StarHub CEO in 1999 came at a time when the local telecommunications sector was ringing in a sea change with the dawn of market liberalisation. A decade on, the firm’s change-of-guard again coincides with a new era of competition, and the stakes are just as high for former M1 chief Neil Montefiore.
In anointing its new chief executive, StarHub has clearly opted for a safe bet by roping in a seasoned deckhand to steer the course when Mr Clontz retires in January next year.
StarHub’s former president Mike Reynolds would arguably have been the first choice had he not left to take over as CEO of New Zealand’s third mobile operator 2degrees. With the telco sector on the cusp of sweeping changes, it needed someone who could promptly get up to speed and Mr Montefiore naturally fits the bill.
Having taken over the reins at M1 three years before StarHub even came into the picture, he is well attuned to Singapore’s competitive landscape and regulatory nuances. In addition, StarHub can expect to glean some insights into the inner workings of a rival and possibly uncover its Achilles heel by poaching the former M1 helmsman.
While it is clear what Mr Montefiore brings to the table, it is what he doesn’t that has raised a fair share of market eyebrows.
Culturally, StarHub displayed a more brazen competitive approach under Mr Clontz’s stewardship. It went tit-for-tat with SingTel on all fronts from mobile to pay-TV and broadband services. M1 on the other hand, was more conservative and defensive while Mr Montefiore was at the helm.
More importantly, M1’s business is anchored on consumer mobile services, a segment which makes up one-fourth of StarHub’s overall business portfolio. With Singapore’s cellphone penetration already at a sky-high level of 133.8 per cent, the mobile sector is already teetering on the brink of saturation.
The prerogative now among all three operators is to drive the uptake of new mobile data services – a task which Mr Montefiore may not be all that familiar with, given his priority in the past decade was primarily about increasing mobile subscriber share.
StarHub’s two other cash cows are cable TV and broadband, businesses that are also foreign to its incoming chief.
The dynamics of negotiating exclusive content agreements, and the intricacies of being an Internet service provider are things that Mr Montefiore will need to learn quickly, though time may not be on his side.
Like its counterparts, StarHub is being threatened on all fronts. Its cable television business is facing competition from SingTel’s mio TV offering.
The latter’s pay-TV foray is hardly denting StarHub’s market share for now. However, it does throw a spanner in the works when it comes to bidding for content; the bruising bidding war between StarHub and SingTel for last season’s English Premier League (EPL) broadcast rights is a salient reminder. Both companies are again going head-to-head this year – a move that will inevitably jack up costs at a time when subscribers are tightening their purse strings.
In addition, new pay-TV rivals could emerge once Singapore’s fibre-optic network is in place in end-2012 as breakneck broadband speeds will allow television programmes to be easily streamed to consumers. The same applies to Internet services as the government’s open-access mandate levels the playing filed and allows new entrants to have access to the country’s broadband pipes at the same price as incumbents.
While new competitors may throw their hat into the ring, the biggest thorn in StarHub’s side will continue to be SingTel. In this regard, having the former M1 chief as its new front man could be the harbinger of a closer alliance against the country’s dominant telco; after all, the duo had already joined hands to bid for the contract for building Singapore’s fibre-optic network in 2008. M1 is also using StarHub’s cable Internet platform to power its current broadband offerings.
Given their recent track record, perhaps a full-fledged union could eventually be in the making to stem the surging red tide. And having a face that is familiar to both companies would certainly smoothen the way for any consolidation.
STEng – BT
ST Engg unit wins 1st military contract
ST Engineering said yesterday its indirectly-owned subsidiary VT LeeBoy Inc has been awarded its first military contract.
VT LeeBoy has secured a contract worth over US$11 million from US Army Contracting Command to supply asphalt paving equipment to the US Army over five years.
This contract marks the first step in the special vehicles unit supplier’s attempt to diversify its customer base during the downturn.
‘The contract award from the US Army recognises the quality and overall value that LeeBoy’s products deliver and, hopefully, it will enable LeeBoy to break into foreign military sales as well,’ a company spokesperson said.
The agreement is not expected to have a material impact on the group’s consolidated net tangible assets per share or earnings per share for the current financial year.
VT LeeBoy is a wholly-owned subsidiary of VT Systems, which in turn is a wholly-owned subsidiary of ST Engineering.
ST Engineering’s stock closed three cents higher at $2.55 yesterday.
TELCOs – CIMB
2Q09 results preview
• No surprises expected. We anticipate a fairly uninspiring 2Q where we project sector revenue growth of 3% and sector EBITDA to be relatively flat on a qoq basis. Specifically, we see revenues being relatively lifeless owing to stagnating usage patterns and weakness in roaming, IDD and migrant worker usage. The compensating factor, however, would be the growth in data services. Cost containment, while an ever-present theme, will face resistance from normalising
subscriber acquisition and retention cost (SAC) after a seasonally low 1Q09. Key themes to watch out for are a) normalising SACs, b) weak toplines, c) market share trends, d) cost containment and e) skirmishes in broadband.
• Expectations for operators. For M1, we think the key event would centre around their success in curbing, if not improving, their market share erosion which has now descended near their internal threshold. Thus, we anticipate revenue to decline by 1-2% for 2Q exacerbated by slower roaming, and weaker mobile usage among the migrant worker segment. We project EBITDA margin declines of 0.5-1% pts on a qoq basis leading to a net profit contraction of 9-10% sequentially. For StarHub, we see 2Q revenue declining by a smaller 1-2% relative to 1Q. We think that there could be multi-faceted threats to topline from its discretionary base which is
arguably more vulnerable to an economic slowdown. In terms of margins, we believe that there could be some slight pressure on margins owing to promotion campaigns and potential down trading. Thus, we believe that EBITDA margins would trend downwards slightly by close to 1% pts leading to net profit contraction of 5-7% qoq decline. SingTel Singapore should see a 4% qoq revenue rebound in 2Q09, on the back of wireless and wired broadband revenue. EBITDA margins should fall from the seasonally high 1Q09 of 37.6% to 36% in 2Q as subscriber acquisition and retention costs rise from its seasonal low.
• Maintain NEUTRAL on the sector. Given our more optimistic outlook on the stock market, we believe that telcos will not outperform the market. Hence, we advise investors to switch out of telcos into high beta cyclicals and reiterate our Neutral stance on the sector. That said, dividend yields are a prime downside supporter with average yields of 4-9% for CY09.
• Top pick is SingTel. Our top pick in the sector continues to be SingTel for its earnings turnaround, exposure to emerging markets and the strengthening regional currencies. We maintain our OUTPERFORM rating on the stock with a SOP-based target price of S$3.20. Potential re-rating catalysts include qoq earnings growth driven by the strong performances of its key associates. We advocate switching out of StarHub (Underperform, Target price: S$1.54) into SingTel as we believe its share price will come under pressure when bidding for rights to broadcast the Barclays Premier League begins in 3Q09.