What to expect for 1Q12

We do not expect surprises in the 1Q12 results season. The usual themes are: 1) service revenue to remain muted;2) EBITDA margins to remain flat or up slightly; and 3) data to continue replacing voice.

We remain Neutral on Singapore telcos, maintaining our earnings forecasts and target prices. StarHub remains an Outperform and is our top Singapore/regional telco pick as we expect higher dividend payouts from its under-leveraged balance sheet.

Themes for 1Q12

We generally expect: 1) service revenue to remain muted as more Singaporeans travel out of the country during festive holidays, part of the seasonality; 2) EBITDA margins to improve on the back of lower advertising and marketing expenses and lower smartphone subsidies; and 3) data revenues to continue replacing voice revenues as a result of higher smartphone penetration rates.

Expectation for StarHub

We estimate earnings growth of 5-9% qoq for StarHub on margin improvements as lower subsidies added to lower advertising and marketing expenses during the quarter. Mobile revenues are also expected to rise on higher data take-up from higher smartphone penetration rates. We expect pay-TV revenue to remain stable qoq but increase yoy as StarHub raised its pricing by 4% in Aug 11.

Expectations for M1

We expect core profit to come in at S$37m-40m for 1Q12, with earnings contracting 1% or growing as much as 7% qoq. Revenue is expected to weaken on the back of lower handset sales (iPhone4S was launched in Oct 11) and lower service revenue. Meanwhile, we expect margins to improve from lower advertising and marketing spending and lower iPhone subsidies. M1 is scheduled to release its 1Q12 results on 6 Apr.

We will be previewing SingTel’s results separately.

What to expect for 1Q12

We do not expect surprises in the 1Q12 results season. The usual themes are: 1) service revenue to remain muted;2) EBITDA margins to remain flat or up slightly; and 3) data to continue replacing voice.

We remain Neutral on Singapore telcos, maintaining our earnings forecasts and target prices. StarHub remains an Outperform and is our top Singapore/regional telco pick as we expect higher dividend payouts from its under-leveraged balance sheet.

Themes for 1Q12

We generally expect: 1) service revenue to remain muted as more Singaporeans travel out of the country during festive holidays, part of the seasonality; 2) EBITDA margins to improve on the back of lower advertising and marketing expenses and lower smartphone subsidies; and 3) data revenues to continue replacing voice revenues as a result of higher smartphone penetration rates.

Expectation for StarHub

We estimate earnings growth of 5-9% qoq for StarHub on margin improvements as lower subsidies added to lower advertising and marketing expenses during the quarter. Mobile revenues are also expected to rise on higher data take-up from higher smartphone penetration rates. We expect pay-TV revenue to remain stable qoq but increase yoy as StarHub raised its pricing by 4% in Aug 11.

Expectations for M1

We expect core profit to come in at S$37m-40m for 1Q12, with earnings contracting 1% or growing as much as 7% qoq. Revenue is expected to weaken on the back of lower handset sales (iPhone4S was launched in Oct 11) and lower service revenue. Meanwhile, we expect margins to improve from lower advertising and marketing spending and lower iPhone subsidies. M1 is scheduled to release its 1Q12 results on 6 Apr.

We will be previewing SingTel’s results separately.

SingTel, StarHub share prices neck-and-neck

While the former drifts, the latter gains 4% on top of last year’s 11%

THE share prices of telco rivals SingTel and StarHub have been within spitting distance of one another over the last week, for the first time since 2006.

As SingTel’s share price spent the year either moving sideways or in slight decline, StarHub’s price has picked up considerably, narrowing the share price gap to just three cents yesterday. SingTel closed at $3.11, while StarHub closed at $3.08.

In terms of market capitalisation, however, the two telcos are still worlds apart. SingTel weighs in at the top of the Singapore Exchange with almost $50 billion while StarHub is just over a tenth of that value, at $5.2 billion.

Investors who bought into StarHub stock when it listed in 2004, however, would have made out a lot better than people who bought SingTel stock at the same time.

Excluding dividends, since StarHub went public, it has returned more than 200 per cent, from around 90 cents to about $3 today. During the same period, SingTel’s share price rose about 41 per cent.

For argument’s sake, an investor in M1 – the smallest telco of the three – would have seen a 61 per cent gain in share price over the same period. The counter closed at $2.51 yesterday, having climbed steadily from $2.41 since mid-January. Its market cap now stands at about $2.27 billion.

StarHub stock in particular saw a stellar 2011, recording the largest share price gain among the telcos – slightly over 10 per cent. Since the start of the year, it has chalked up an additional 4 per cent in gains.

In contrast this year, SingTel has spent the year knocking about sideways, starting the year at $3.14 and closing trading yesterday at $3.11. Nomura analysts noted in February that this rangebound trading has been going on for a while.

‘The stock has been stuck in a trading range of around $2.80-3.40 for the past two years . . . We do not see too many scenarios of it breaking this trading range, unless there is some possible business restructure,’ the Nomura report said.

That restructuring recently came to fruition when SingTel announced a full-scale organisational overhaul with a new emphasis on the digital sector. Even so, CIMB analyst Kelvin Goh – who holds a ‘neutral’ rating on SingTel with a target price of $3.36 – remained ‘cautious on SingTel as we think its earnings growth will be under pressure from its overseas operations’.

Other analysts are standing by SingTel, with DBS Group Research’s Sachin Mittal deeming it his top pick in Singapore as Bharti looks to gain ground in India. Mr Mittal had a ‘buy’ rating on SingTel with a $3.32 price target at the start of the month.

The sector as a whole, however, gets a vote from OCBC’s Carey Wong, who is overweight on telcos. He has ‘buy’ ratings for all three firms.

‘With markets likely to remain volatile, we believe that the telcos’ defensive earnings and attractive yields offer a safe harbour for the less risk-adverse investors,’ he said in his report.

SingTel, StarHub share prices neck-and-neck

While the former drifts, the latter gains 4% on top of last year’s 11%

THE share prices of telco rivals SingTel and StarHub have been within spitting distance of one another over the last week, for the first time since 2006.

As SingTel’s share price spent the year either moving sideways or in slight decline, StarHub’s price has picked up considerably, narrowing the share price gap to just three cents yesterday. SingTel closed at $3.11, while StarHub closed at $3.08.

In terms of market capitalisation, however, the two telcos are still worlds apart. SingTel weighs in at the top of the Singapore Exchange with almost $50 billion while StarHub is just over a tenth of that value, at $5.2 billion.

Investors who bought into StarHub stock when it listed in 2004, however, would have made out a lot better than people who bought SingTel stock at the same time.

Excluding dividends, since StarHub went public, it has returned more than 200 per cent, from around 90 cents to about $3 today. During the same period, SingTel’s share price rose about 41 per cent.

For argument’s sake, an investor in M1 – the smallest telco of the three – would have seen a 61 per cent gain in share price over the same period. The counter closed at $2.51 yesterday, having climbed steadily from $2.41 since mid-January. Its market cap now stands at about $2.27 billion.

StarHub stock in particular saw a stellar 2011, recording the largest share price gain among the telcos – slightly over 10 per cent. Since the start of the year, it has chalked up an additional 4 per cent in gains.

In contrast this year, SingTel has spent the year knocking about sideways, starting the year at $3.14 and closing trading yesterday at $3.11. Nomura analysts noted in February that this rangebound trading has been going on for a while.

‘The stock has been stuck in a trading range of around $2.80-3.40 for the past two years . . . We do not see too many scenarios of it breaking this trading range, unless there is some possible business restructure,’ the Nomura report said.

That restructuring recently came to fruition when SingTel announced a full-scale organisational overhaul with a new emphasis on the digital sector. Even so, CIMB analyst Kelvin Goh – who holds a ‘neutral’ rating on SingTel with a target price of $3.36 – remained ‘cautious on SingTel as we think its earnings growth will be under pressure from its overseas operations’.

Other analysts are standing by SingTel, with DBS Group Research’s Sachin Mittal deeming it his top pick in Singapore as Bharti looks to gain ground in India. Mr Mittal had a ‘buy’ rating on SingTel with a $3.32 price target at the start of the month.

The sector as a whole, however, gets a vote from OCBC’s Carey Wong, who is overweight on telcos. He has ‘buy’ ratings for all three firms.

‘With markets likely to remain volatile, we believe that the telcos’ defensive earnings and attractive yields offer a safe harbour for the less risk-adverse investors,’ he said in his report.