Category: SingTel
SingTel – CIMB
Investor Day takeaways
At its Investor Day, SingTel said it plans to list its investments in the digital space to unlock value. The growth driver across the group is mobile data via bundling of services in more developed markets while it is dependent on lower smartphone prices in emerging markets.
It wants to focus more on monetising pay TV subscribers in Singapore and less on acquisition. SingTel remains an Underperform with an SOP-based target price of S$3.23. Likely de-rating catalysts are earnings disappointment and regulatory developments in India.
Interest aplenty in Group Digital Life
Investor interest was strongest in Group Digital Life, which complements the group’s consumer offerings with digital services. SingTel’s investments in the digital space must have a competitive edge, the ability to leverage its existing assets and involve the core daily activities of customers. It is eyeing video, digital advertising, games, e-commerce and advanced communications. While it did not reveal how much it is setting aside for investments in digital, SingTel will detail this during its FY13 results announcement. It will also disclose milestones achieved by GDL and its targets. SingTel is prepared to list these investments on the stock market to unlock their value.
Group Consumer
At the Group Consumer level, SingTel is changing its business model in terms of: 1) customer experience, 2) monetisation and scientific marketing, 3) network, and 4) the introduction of Digital Life in Singapore and Australia. SingTel plans to extend these strategies to its associates. SingTel’s lack of management control over its associates and the disparate maturities of the markets in which SingTel’s associates operate are key challenges in driving these initiatives across the group, in our view.
Dialling up data
The growth driver across the group is mobile data as wallet share rises when users move up from 2G to 3G and to 4G. In Australia and Singapore, SingTel plans to: 1) offer digital services to stimulate data usage and encourage loyalty, and 2) bundle multiple services which lowers user churn. In emerging markets, the key to data usage is lower smartphone prices. Most of its associates say the sweet spot for greater smartphone uptake is US$100 or less.
TELCOs – OCBC
EXPECTING HIGHER CAPEX IN 2013
- 1 near-miss, 2 hits
- Higher capex guidance
- Yield story likely unchanged
M1 below, rest mostly inline
Out of the three telcos, M1’s 4Q12 results were slightly below our forecast while the other two were mostly in line. Nevertheless, we note that M1 not only managed to post a recovery in its EBITDA margin, but also was the highest among the three. As M1 had earlier guided, the recovery was due to the upfront expensing of its smartphone subsidy. M1 also surprised with a special dividend of S$0.017/share on top of its final dividend of S$0.063. StarHub declared a quarterly dividend of S$0.05 as guided.
Review of Singapore mobile operations
Core post-paid mobile subscribers grew by another healthy 2.0% QoQ to 4.3m in Dec quarter, led by SingTel with 2.5%, StarHub 1.7% and M1 1.6%. Monthly ARPUs were also quite stable; and all three telcos expect to see uplifts this year as more users switch over to the new tiered pricing plans with less generous data bundles; this aided by the introduction of more LTE-enabled smartphones.
Most expecting higher capex this year
For 2013, M1 expects to see a moderate earnings growth as it continues to benefit from the upfront expensing of smartphone subsidies; also expects to maintain a dividend payout of at least 80% of underlying profit. For StarHub, it expects single digit revenue growth and an EBITDA margin of 31%; no change to its quarterly S$0.05/share dividend guidance. But both telcos have started to guide for higher capex this year, which they continue to roll-out their 4G networks and also to cater for the growing data usage pattern. Lastly, SingTel has kept its previous guidance, but note that its year-end is in Mar.
Maintain OVERWEIGHT
For now, we maintain our OVERWEIGHT on the sector. But as the telcos have already done quite well YTD, further capital appreciation may be limited, although dividend yields are still relatively attractive. M1 remains our top pick.
TELECOM | OVERWEIGHT
19 Feb 2013
Sector Update
Singapore | Telecom Sector Asia Pacific Equity Research
MICA
SingTel – Phillip
Expect FY13 to be within mgmt guidance
Company Overview
SingTel (ST) is a leading communications service provider with diversified geographical exposures. The core part of SingTel’s business resides in Singapore & Australia, while meaningful stakes in its regional Associates provides the Group with exposure across Asia-Pacific.
- Underlying net income lower y-y at S$874 million
- Positive on Singapore performance, while AIS and Telkomsel’s contributions remain strong
- Bharti pre-tax contribution lower q-q, Optus EBITDA stable, but Capex requirements still high
- We rate SingTel as Neutral with new TP of S$3.31
What is the news?
SingTel reported 3Q13 underlying profits of S$874 million, decreasing 2.3% y-y. Management maintained their guidance on the EBITDA and Capex for the various segments. In Singapore, revenue increased marginally 1.3%, due to higher Mobile, IPTV, and Equipment revenue, mitigated by lower International and national telephone revenue. In Australia, revenue decreased 8.1%, largely due to lower mobile revenue attributable to the decline in mobile termination rate and introduction of service credits. AIS and Telkomsel post healthy results, while Bharti’s pre-tax contributions continue to decline.
How do we view
3Q13’s earnings were below our expectations on weaker revenue from Optus, and lower contributions from associates. Positives from this round of results include an increase in data monetizing, indications of lower IPTV content cost in Singapore, effective cost management in Australia, and potentially better performances for Globe and Bharti moving forward. Optus would however require continued higher capex, and may incur high spectrum costs.
Investment Actions?
We factor in 3Q13’s earnings, and improved q-q valuation of the associates. We derive a new Sum-of-the-parts (SOTP) target price of S$3.31, and maintain our “Neutral” call.
SingTel – OCBC
STABLE 3QFY13 RESULTS
- 9MFY13 results in line
- No change to guidance
- Higher S$3.68 FV
Stable 3QFY13 results
SingTel saw its 3QFY13 group revenue dipping 4.8% YoY to S$4597m, and while EBITDA rose 0.5% to S$1262m, net profit fell 8.3% to S$827m (mainly due to exceptional loss of S$67m). However, excluding exceptional items, underlying net profit was down 2.3% at S$874m. 9MFY13 revenue fell 2.4% to S$13702m, meeting 73% of our FY13 forecast, while net profit slipped 2.2% to S$2640m; core earnings was down 1.6% at S$2610m, or 69% of full-year estimate.
FY13 guidance unchanged
Going forward, SingTel has kept its previously revised guidance unchanged for FY13 i.e. consolidated revenue to see single-digit decline, although EBITDA will remain stable. Free cashflow (FCF) is expected to remain around S$2.6b (its 9MFY13 FCF hit S$2.49b); capex for Singapore still around S$950m and Australia about A$1.1b (excluding spectrum payments). SingTel adds that consolidated revenue and EBITDA would be impacted by material exchange rate movements in A$ and regional currencies.
Myanmar is a potential market
While SingTel will continue to focus on its transformation plan to grow in the new digital era, it can also grow its regional business. We understand that the telco is understandably keen on getting into a new and untapped market in Myanmar. However, management notes that it is still early days as the government there has just called for an expression of interest. It adds that many global telco players are also keen on securing one of the two licenses potentially on offer.
Maintain BUY with new S$3.68 FV
As results were in line with our expectations, we opt to leave our forecasts unchanged for now. However, in line of the recent recovery in the price of its listed associates, our SOTP-based fair value improves from S$3.53 to S$3.68. We also maintain our BUY rating on the stock.
SingTel – Lim & Tan
- Results for Q3 ended Dec ’12 tell the same story as in recent quarters – underlying profit (excluding exceptionals) fell 2.3% to $874 mln.
- Singapore was resilient while Optus Australia was marginally better with underlying profit 2.7% higher even as revenue fell 6%.
- Improved contributions from Telkomsel (Indonesia) and AIS (Thailand) were largely offset by India’s Airtel.
- Free cash flow rose 5% to $666 mln.
- Assuming unchanged final dividend of 9 cents as has been the case at the interim stage of 6.8 cents, yield is 4.4%.
- We are downgrading stock to HOLD following the 9.4% price gain in the year to date (on talk of entry into the Myanmar market), outperforming STI ‘s 4.2% rise.