Category: M1
Pay TV – CNA
Pay TV providers now required to cross-carry exclusive content
With immediate effect, Pay TV providers which acquire exclusive broadcast rights to any programme, must cross-carry each other's content.
This applies to any contract signed or renewed from March 12. It does not affect existing contracts.
The fierce bidding over rights to broadcast the upcoming World Cup matches raised concerns over the issue of 'exclusive' rights, which has affected consumers in the Pay TV market.
To lock out competitors, Acting Minister for Information, Communications and the Arts Lui Tuck Yew said on Friday said Pay TV operators are willing to fork out substantial amounts for exclusive rights.
This has led consumers to cry foul, especially since they have to subscribe to both SingTel and StarHub – rivals in Singapore's PayTV market – for example, to catch their favourite football teams in action.
This practice of holding on to exclusive content though is rare in international markets.
Mr Lui said: "Content costs now constitute a significant percentage of pay TV operators' revenue, compared to international benchmarks. For example, SCV's content costs to revenue ratio has risen from 40 per cent prior to 2007 to close to 70 per cent today. This is much higher than the average 40 per cent for Pay TV operators in most other countries, including US, UK and Hong Kong.
"Secondly, Singapore suffers from a high degree of content fragmentation compared to other countries. Out of 179 channels today, only seven channels are common to both SCV and SingTel. An international benchmarking exercise using a group of 16 popular channels showed that Singapore was the only country with exclusive arrangements for all 16 channels.
"MDA's (Media Development Authority) review has concluded that this situation is unlikely to self-correct in the near future, and steps need to be taken to address this market failure".
So under the new Media Market Conduct Code, there will be a Public Interest Obligation. This means Pay TV providers must cross-carry each other's exclusive content.
For example, if SingTel acquires a new channel exclusively, it must make this channel available to StarHub.
StarHub must carry this programme at the same time SingTel is airing it – and vice versa.
StarHub also cannot make any modifications to the content.
This includes all the advertisements and branding SingTel may have embedded into the programme.
And SingTel will have to pay StarHub to carry its exclusive content.
It will be left to the telcos to work out a cost for this.
For consumers, it means that they can watch an exclusive channel through just one Pay TV retailer.
Consumers, regardless of which Pay TV service provider they belong to, will be charged the rate that has been stipulated by the original content provider. In the case of the example, whatever SingTel charges its customers for the exclusive content, StarHub customers will pay the same rate.
Mr Lui elaborated: "Consumers would no longer require multiple set-top boxes or switch retailers each time the rights of exclusive content changes hands. This will facilitate greater consumer access to pay-TV content, and re-focus competition to other aspects, such as service differentiation and competitive packaging".
For the industry, it means opening up the market to new players.
The rights holder will be able to brand the exclusive content, market it and monetise it as it wishes.
While the law takes immediate effect, the actually sharing of content is likely only to take place from September. For now, MDA will consult industry players, and sort out the details, like how consumers' bills will look like, and whether the review will affect new media platforms.
As for how this will impact the broadcast of World Cup matches in Singapore, it is status quo for now, as SingTel and StarHub have submitted a joint bid and are waiting for FIFA's reply.
Mr Lui said: "Let me just say that I am very happy that World Cup comes around only once every four years. We understand that SingTel and StarHub have recently made a new offer and negotiations with FIFA are still on-going. This is a commercial matter that is best left to the two pay-TV retailers and FIFA to settle.
"I know time is running short; we are well into the second half, we are approaching injury time, but we remain hopeful that the negotiations will reach a sensible outcome."
Meanwhile, Pay TV operators SingTel and StarHub have responded to the government's announcement on content exclusivity.
SingTel said it will review the details and actively engage the MDA through the industry consultation process.
StarHub said it fully supports the government's efforts to ensure fair and reasonable content costs. It also added that it supports the idea of a common set-top box for consumers.
MediaCorp also spoke to Singaporeans for their views.
One person said: "If a particular coverage has got wide appeal, like it is a national event or an international event, I think this should be made readily available, preferably free, if not, (at) a very reasonable rate to the consumers."
Another commented: "If this new initiative comes up, there is no edge by one service provider over another."
Analysts have said consumers will benefit from the move requiring Pay TV operators with exclusive content to allow such programming to be carried by other operators.
Kenneth Liew, senior market analyst, IDC Financial Insights, said: "In terms of pricing, in future bidding, both companies are likely to not bid so much on exclusive content, because at the end of the day, the other party will get to screen it, so they will actually bid at more reasonable prices.
"This is good news for consumers, because the bid price being lower will actually bring down the cost for consumers as well." – CNA/ms
TELCOs – CIMB
4Q09 results round-up
• No surprises in 4Q09; maintain UNDERWEIGHT. 4Q09 results of all three Singapore telcos were fairly in line, with typical seasonality. Highlights were: 1) rather poor service revenue growth although mobile revenue continued to improve; 2) weaker margins; and 3) continued ARPU and revenue pressure in fixed broadband and corporate data. We retain our UNDERWEIGHT position on the sector as we remain apprehensive about rising content costs, pressure on broadband ARPUs and escalating subsidies. While we leave our DCF-based target price of S$2.07 (WACC: 9.5%) intact, we downgrade M1 from Outperform to NEUTRAL as it has outpaced the market by 9% since our upgrade and our house continues to prefer higher-beta and cyclical stocks. Nevertheless, M1 remains our top Singapore telco pick for its capital-management potential and greatest upside to NGNBN. Avoid StarHub (UNDERPERFORM, TP: S$2.14) and SingTel (UNDERPERFORM, TP: S$3.30).
• Weak service revenue… Service revenue growth decelerated to +1.3% yoy in 4Q09, the second lowest ever, due partly to competition despite a recovering economy. M1’s mobile revenue was weak from lower voice usage and roaming in postpaid and IDD revenue. StarHub’s fixed broadband and corporate data revenue came under pressure from competition while SingTel’s IDD revenue was lower from lower rates. Mobile revenue grew 5% yoy in 4Q09, driven by growth at SingTel and StarHub from their larger customer bases.
• …and margins. EBITDA margins slipped from seasonality and iPhone-induced SACs. With M1 and StarHub launching iPhones, industry EBITDA margins fell 2.6% pts qoq to 33.5%, the lowest since we began keeping records in 1Q04. Fixed broadband and corporate data revenue remained weak as competition remained rather heavy in those business verticals.
• Uninspiring outlook. M1 and StarHub gave fairly lacklustre 2010 guidance but we believe M1 is low-balling expectations. We believe Singapore telcos will benefit from the recovering economy and rising tourist arrivals with the opening of two integrated resorts. M1 should benefit the most as it is a pure mobile operator. SingTel has maintained its muted guidance of low-single-digit growth for revenue and EBITDA for FY3/10 which should easily be achieved with the help of A$ strength and strong growth in its IT and Engineering division from NGNBN rollout. On the downside, we expect competition to stiffen in the residential and corporate broadband markets throughout this year while content costs should remain a medium to long-term issue. We do, however, expect heavy subsidies for devices to persist in line with recent trends.
Yield Stocks – BT
Analysts still in favour of high-dividend stocks
Telecommunications sector cited as the space to watch for such plays
HIGH-dividend stocks have yet to fall out of favour with some analysts, even though markets have climbed.
In fact, investors might do well to hang on to some dividend-rich stocks this year, they say. Not only might the payouts account for a large part of returns, they might also provide shelter from the vagaries of the market.
A Citi Investment Research report on Feb 8 noted that in the past 10 years, equities in Asia ex-Japan have generated a compounded total return of just 5.9 per cent per annum in US dollar terms, 46 per cent of which came from dividends. ‘This is too large a number to walk away from,’ said strategists Markus Rosgen and Elaine Chu.
And in a year when equity returns are not expected to be stunning, dividends will matter even more, Citi said.
This view is shared by UBS executive director and head of wealth management research Singapore Hartmut Issel.
Mr Issel points out that in a period following an economic turnaround, returns typically range from 10-13 per cent. ‘In such an environment, similar to what we are expecting for 2010, a 5 or 6 per cent yield renders dividend names more interesting,’ he said.
For sample stocks that UBS put to a test, ‘this would account for about half the total return for the year and may mean the difference between beating the benchmark index or trailing it’.
Furthermore, equity mar-kets were still jumpy and investors might derive greater assurance from dividends in hand than from capital gains that may not materialise.
In the past few weeks, for instance, the local stock market has dipped following news of China’s bank lending restrictions, US President Barack Obama’s plan to limit big banks’ businesses and sovereign debt problems in Europe.
‘We expect the equity risk premium to be higher now,’ said DBS Vickers research head Janice Chua. ‘We are seeing more of the defensive and high-yield stocks holding better than high-beta stocks.’
UBS’s Mr Issel also noted that high-dividend stocks may produce ‘decent’ capital gains this year.
All the analysts cited the telecommunications sector as the space to watch for high-dividend plays. Citi picked StarHub and MobileOne (M1) from this industry. DBS Vickers’ favourites are Singapore Telecom and and M1.
StarHub has been in the spotlight over its commitment to pay at least five cents per share every quarter as dividends – some have questioned whether it can maintain this payout in the long term.
Other dividend-rich counters identified include ST Engineering, Singapore Press Holdings, Ascendas India Trust, Mapletree Logistics Trust, Venture Corp and SIA Engineering.
But at the end of the day, before buying that high-dividend or high-growth stock, investors should consider what their risk profiles are, said Aberdeen Asset Management investment manager Christopher Wong.
‘If the risk appetite is lower for certain investors, they may want to consider more dividend-type stocks,’ he said.
M1 – Phillip
FY2009 results
M1 reported operating revenue of S$781.6m (-2.4% yoy) and net profit of S$150.3m (+0.1% yoy) for FY2009.
Mobile telecommunications services revenue dropped to S$565.7m (-5.9% yoy). Due to lower voice usage and roaming revenue, there was a decline in post-paid revenue, which more than offset the increase in pre-paid revenue. Moreover, international call services revenue fell to S$128.4m (-6.3% yoy) because of the decrease in roaming traffic. However, fixed network and handset sales revenue rose to S$6.6m (+3,200.0% yoy) and S$80.9m (+30.2% yoy) respectively.
Operating expenses also dropped to S$601.9m (-1.2% yoy) because of lower facilities expenses, provision for doubtful debts and staff costs.
Net profit was slightly higher mainly due to lower provison for taxation of S$24.8m (-29.0% yoy). This was because of lower corporate tax rate.
Profit margin
Net profit margin increased from 18.7% in FY2008 to 19.2% in FY2009 mainly due to the decrease in provision for tax.
Changes in market share
M1 reported that the number of post-paid and pre-paid customers increased by 3.4% and 13.1% to 912,000 and 846,000 respectively. Its post-paid market share fell from 27.0% to 26.4% while its pre-paid market share rose from 24.3% to 25.0%. We are concerned about the decline in post-paid market share as M1 has lagged behind SingTel and StarHub in this segment. This is because M1 does not have Pay TV and is not able to offer bundled mobile, internet and Pay TV services.
Outlook for FY2010
M1 expects the earnings for FY2010F to be comparable to FY2009. Moreover, it believes that the launch of the Next Generation National Broadband Network (NGNBN) in 2Q10 will provide opportunities to offer internet services to retail and corporate customers.
Maintain Hold with fair value raised from S$1.78 to S$2.03
We raise the fair value of M1 from S$1.78 to S$2.03 as we expect M1 to report higher earnings in FY2010F. This is because it acquired Qala, an internet services provider for corporate, enterprise and public sector customers in Singapore, in FY2009. This is likely to boost its broadband revenue and profit in FY2010F. However, due to limited upside from the current share price, we maintain our hold recommendation.
M1 – OSK
Shifting to Higher Gear
M1’s FY09 results were largely in line with our and consensus estimates. Following this, we raise our FY10/11 forecasts by 0.3-3%, which accordingly increases our target price to SGD2.30 (from SGD1.90) based on DCF. M1 remains a good dividend play, with the re-rating catalysts coming from the NGNBN rollout in 2Q10, improved mobile spending and progressive capital management. Our recommendation is upgraded to a BUY from NEUTRAL given the 17% upside to our revised target.
In line. M1 reported 4Q09 and FY09 core earnings of SGD37.2m and SGD150.3m respectively, in line with our and consensus full-year forecasts of SGD148.7m- SGD150m. Core earnings grew 2% y-o-y (+8.5% q-o-q) in 4Q09, reversing 2 consecutive quarters of decline. This was against the 11% y-o-y revenue expansion (+14.7% q-o-q) led primarily by increased handset sales. Postpaid revenue rose 2% q-o-q, the fastest since 2Q07, alluding to stronger roaming revenue in line with the nascent economic recovery. EBITDA margin held up well q-o-q but was 1.6%-points higher at 44.2% in FY09 on lower bad debt provision and facilities expense, which more than offset higher overall cost of sales. The key takeaways were: (i) the more than doubling in handset sales, both y-o-y and q-o-q as it benefitted from the launch of the iPhone 3Gs in early Dec ’09, and healthy take-up of its Take 3 bundling program; (ii) improved mobile revenue traction as the economic recovery momentum gathered pace; and (iii) the 3%-points rise in non-voice as a percentage of service revenue. Management has proposed a 7.2 cents/share final dividend, which renders full year dividend at 13.4 cent/share net, consistent with the regular dividend payout commitment of 80%.
Capex not exceeding SGD120m for FY10. M1 intends to upgrade its current HSPA+ offering to reach 42Mbps in 2010. A live trial of LTE is slated for next month. The guidance is for capex of SGD100-120m for FY10 (FY09: SGD119m) with little incremental capex (approx. SGD10m) required for NGNBN implementation.
Capital management upside. We expect more proactive capital management and hence the return of surplus cash to shareholders. More clarity would follow that of the re-financing of a SGD250m debt due later this year.
NGNBN fillip. We see M1 gaining most from the rollout of NGNBN, especially within the retail/residential (ADSL/cable) and enterprise segments where it would be able to compete on a more level playing field. We have upgraded our FY10/11 earnings by 0.3-3% following the FY09 results, mainly to factor in the improved fixed and mobile revenue traction and handset sales. Management’s guidance is for FY10 core earnings to be on par with FY09. Our DCF target price has been nudged higher to SGD2.30 from SGD1.90 (WACC: 10.1%; TG:1.5%) previously. Upgrade to BUY.