Category: M1
TELCOs – DBSV
iPad- lessons learnt from AT&T
• iPad’s microSIM is smaller than traditional SIM; New revenue stream for operators from iPad’s 3G-data plan.
• Potential could be 2-3% of revenue and 3-4% of earnings, plus for cellular players.
• M1 offers cheaper iPad plans with limited usage, a lesson learnt from AT&T. SingTel and StarHub offer premium plans with higher usage.
• We prefer SingTel & M1 to StarHub.
New revenue-stream for cellular players. iPad uses microSIM card, which is smaller than traditional SIM card. Arguably SIM card can be trimmed to a microSIM card but then it would become useless for smartphone ruling out interchangeability. As such, iPad owners would need to buy new 3G-data plan, which would be a new revenue stream for cellular players. We estimate 50K and 150K iPad households in 2010 and 2011, based on 5% and 15% household penetration rate in Singapore in 2010 & 2011 respectively. Assuming 80% of iPad users subscribe to 3G-data plan with average ARPU of S$25, we estimate iPad data revenue of S$18m in 2011F, about 2.5% of industry cellular revenue. With no device subsidy involved, we expect 70-80% of revenue to flow to the bottomline, contributing about 3-4% of cellular industry bottomline in 2011.
M1’s iPad plan targets light 3G-users, lesson learnt from AT&T. In terms of strategy, M1 seems to target light 3G-data users with cheaper plans, more appealing to the students. This is in contrast to SingTel and StarHub, who are targeting heavy-data users with premium plans. Plus there is no initial fee for M1 iPad plans in contrast to its competitors. This is also inline with AT&T’s experience where it stopped offering unlimited 3G-plans to its new iPad customers and offers maximum 2GB data limit (lower than M1’s 3GB) due to capacity constraints, most probably. AT&T realized that only 2% of people used more than 2GB, congesting the network for the rest 98%. In our view, iPad is like a notebook with more indoor (Wi-Fi) usage and consumers should be discouraged to use excessive 3G-data over Wi-Fi data. While M1 does offer unlimited data plan, we expect more traction for cheaper plans as consumers budget their iPad bills on top of smartphone bills. SingTel targets high-end users with 50GB of data limit while StarHub offers unlimited data under its iPad plans, which raises questions on the efficient use of 3G-network.
Pure cellular players should benefit more. We favor M1 as the chief beneficiary of iPad’s growth in Singapore. We continue to favor SingTel and M1 over StarHub. We like SingTel for strong Optus, recovering Bharti and attractive valuations. We like M1 for its ability to gain its market share, capital management potential and defensive 7% dividend yield. For StarHub, we are afraid that group equity may become negative, if it continues with 20 cents DPS till 2012
TELCOs – BNP
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iPhone 4 to be sold by all three operators this Friday.
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Subsidy levels are likely to be the same as on the 3GS.
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Negative impact on telco’s earnings may be more spread out this time.
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Maintain Neutral on Singapore telcos. Top pick: StarHub.
Everyone wants a bite
iPhone 4 arrives on Singapore shores this Friday!
SingTel, StarHub and M1 have all announced that they will start selling the iPhone 4 this Friday (30 July). Apple (AAPL US, Not rated) also plans to sell the iPhone 4 on a non-contract basis directly through its stores for SGD888-1,048 (16-32Gb). Based on registered interests, all three telcos are expecting demand to be fairly strong on launch day.
iPhone 4 price will be cheaper than 3GS
The data plans announced for the iPhone 4 are identical to those for 3GS, in terms of monthly subscription fees and call/sms/data allocations. However, all operators are pricing the iPhone 4 at SGD38 cheaper than the 3GS. In comparison, in the US, AT&T (T US, Not rated) launched the iPhone 4 at the same price that it initially sold the 3GS (ie USD299 for 32Gb).
Subsidies likely the same but impact will be more spread out
The subsidies on the iPhone 4 are likely to be the same as on the 3GS, with any reduction in handset cost being passed on to subscribers. We maintain that the impact will be negative for telcos for existing subscribers that upgrade to an iPhone (with a data plan). Over a two-year contract, data plan revenues are unlikely to cover the additional subsidies on the iPhone 4. Nevertheless, the negative impact on telcos margins this time around could be more spread out over the next 12 months as a significant number of users (possibly, 150,000-200,000) are likely to have entered into two-year contracts for the 3GS in the last
eight months. There could also be limited volumes of iPhone 4 available-for-sale initially.
Maintain Neutral on the sector; Top pick: StarHub
We maintain NEUTRAL on the Singapore Telco sector. In our view, competitive pressure will remain high in the coming months with: 1) the National Broadband Network due to be launched in 3Q10, and 2) the jostle for Pay-TV market share with the migration of the BPL to SingTel’s MioTV. While there is strong demand for data, much of the benefits are currently accruing to handset vendors due to their strong bargaining power. Our top BUY is StarHub, which we believe offers an attractive and sustainable prospective yield of 8.7%. Sentiment on the stock is also likely to improve given the cross-carriage mandate and potentially less-than feared Pay-TV churn rates in the next two months. We maintain HOLD on SingTel.
TELCOs – BNP
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iPhone 4 to be sold by all three operators this Friday.
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Subsidy levels are likely to be the same as on the 3GS.
•
Negative impact on telco’s earnings may be more spread out this time.
•
Maintain Neutral on Singapore telcos. Top pick: StarHub.
Everyone wants a bite
iPhone 4 arrives on Singapore shores this Friday!
SingTel, StarHub and M1 have all announced that they will start selling the iPhone 4 this Friday (30 July). Apple (AAPL US, Not rated) also plans to sell the iPhone 4 on a non-contract basis directly through its stores for SGD888-1,048 (16-32Gb). Based on registered interests, all three telcos are expecting demand to be fairly strong on launch day.
iPhone 4 price will be cheaper than 3GS
The data plans announced for the iPhone 4 are identical to those for 3GS, in terms of monthly subscription fees and call/sms/data allocations. However, all operators are pricing the iPhone 4 at SGD38 cheaper than the 3GS. In comparison, in the US, AT&T (T US, Not rated) launched the iPhone 4 at the same price that it initially sold the 3GS (ie USD299 for 32Gb).
Subsidies likely the same but impact will be more spread out
The subsidies on the iPhone 4 are likely to be the same as on the 3GS, with any reduction in handset cost being passed on to subscribers. We maintain that the impact will be negative for telcos for existing subscribers that upgrade to an iPhone (with a data plan). Over a two-year contract, data plan revenues are unlikely to cover the additional subsidies on the iPhone 4. Nevertheless, the negative impact on telcos margins this time around could be more spread out over the next 12 months as a significant number of users (possibly, 150,000-200,000) are likely to have entered into two-year contracts for the 3GS in the last
eight months. There could also be limited volumes of iPhone 4 available-for-sale initially.
Maintain Neutral on the sector; Top pick: StarHub
We maintain NEUTRAL on the Singapore Telco sector. In our view, competitive pressure will remain high in the coming months with: 1) the National Broadband Network due to be launched in 3Q10, and 2) the jostle for Pay-TV market share with the migration of the BPL to SingTel’s MioTV. While there is strong demand for data, much of the benefits are currently accruing to handset vendors due to their strong bargaining power. Our top BUY is StarHub, which we believe offers an attractive and sustainable prospective yield of 8.7%. Sentiment on the stock is also likely to improve given the cross-carriage mandate and potentially less-than feared Pay-TV churn rates in the next two months. We maintain HOLD on SingTel.
TELCOs – OCBC
All three telcos to launch iPhone 4G
Simultaneous iPhone 4G launch. All three telcos – M1, SingTel and StarHub – will simultaneously launch the new Apple iPhone 4G on 30 Jul. While this was a departure from the previous iPhone 3GS launch, where SingTel had the exclusive march on the other two telcos for almost four months, we are not surprised by the latest move. We note that Apple has been moving towards non-exclusive deals for its iPhones
across the globe; we suspect the stronger-than-expected demand arising from M1’s and StarHub’s mid-Dec 2009 launch of the iPhone 3GS may have tilted the scale towards a nonexclusive launch. In addition, Apple may also be looking to strive off growing competition from the Android-based smartphones.
Unlikely to see extreme pricing competition. Meanwhile, all the three telcos have started to accept pre-orders for the iPhone 4G online and are pricing the 16GB version between S$0 and S$480 and the 32GB one between S$0 and S$630 depending on the service plans taken up. We note that the pricing was just a little cheaper than the previous model. And being slightly late to the game (StarHub and M1 only started offering the iPhone 3GS in mid-Dec 2009), the demand from their existing iPhone subscribers may not be as strong due to the 2-year lock-in period. We suspect the demand may also be slightly dampened by the 4G’s much-publicized “reception bug”. As such, we note that the promotions/subsidies for the iPhone 4G are not that aggressive. And as expected, the telcos are continuing with the existing iPhone price plans.
Data usage likely to grow. Separately, Apple launched its widely popular iPad tablet in Singapore last Friday to overwhelming response as well. However, due to the closeness of the launches, we suspect that this may steal some of the iPhone 4G’s thunder. Nevertheless, the growing popularity of these smart devices will trigger further growth in the mobile data segment. Already we note that all the three telcos have introduced new standalone mobile data packages for the iPad, but without the margin-sapping subsidies for the device.
Maintain OVERWEIGHT. We believe that the iPhone 4G launch should be quite positive as it is unlikely to result in further margin compression. The impending roll-out of the NBN (new fibre-to-home network) will provide further catalyst for all the three telcos in the latter part of 2010. As we continue to like their defensive earnings and attractive dividend yields, we remain OVERWEIGHT on the sector.
M1 – CIMB
Battle for M1? We think not
Shareholding tussles unlikely
Maintain Outperform. The battle for control over Singapore-listed Parkway has led us to question if M1 could equally be a takeover target, given its fragmented shareholdings. However, we believe the probability of this happening is very slim as: 1) M1 operates in a small and mature market which is unlikely to attract substantial takeover interest, unlike Parkway; and 2) no new major shareholder has emerged in M1’s case. We maintain our OUTPERFORM rating with an unchanged DCF-based (8.5% WACC) target price of S$2.20. M1 remains our top Singapore telco pick, given its potential for capital management backed by a strengthening balance sheet, benefits from NGNBN and the positive impact of soaring tourist arrivals on its inbound roaming services.
The details
The battle for control at Parkway Holdings between Khazanah and Fortis has prompted us to sift through our coverage in search of telcos with fragmented shareholding structures. M1 comes to mind with its key shareholders being 29.62% Axiata (though Sunshare), 19.96% Keppel Telecoms, and 13.89% Singapore Press Holdings. SPH’s stake in M1 is seen as a non-core investment as its bread-and-butter is print media and property. The combination of M1’s fragmented shareholdings and SPH’s treatment of its stake in M1 could lead to speculation that Axiata could mount a full takeover of M1.
Low likelihood. We believe the probability of a battle for control or takeover of M1 by Axiata is very slim:
• Firstly, M1 operates only in Singapore, a small market and mature market, and is unlikely to attract the interest of Axiata or new strategic investors with interest in substantially larger emerging market assets. On the other hand, Parkway is seen as a growth company with a network of 16 hospitals in Asia, including Singapore, Malaysia, Brunei, India and China.
• Secondly, a new major shareholder has not emerged, unlike the case of Parkway. Should Axiata decide to buy out the other major shareholders in M1, it would breach the 30% trigger for a general offer. Assuming it acquires M1 at a 20% premium to M1’s share price, and fund 60% of this with debt, Axiata would have to cough up RM1.5bn, which should be easily funded by its balance sheet. We project its FY10 net debt/EBITDA at 1.1x, up from our base projection of 0.8x. However, the market is likely to frown at such a transaction as M1 is a slow-growth telco operating in a small market, and the funds should be returned as dividends.
Valuation and recommendation
Maintain OUTPERFORM on M1, with an unchanged DCF-based target price of S$2.20. M1 remains our top Singapore telco pick, given its potential for capital management backed by a strengthening balance sheet.