Category: SingTel
TELECOs – DBSV
Three keys – Android, EPL and Fiber
• Singaporeans are no longer obsessed with iPhone, till the launch of iPhone 5 at least. StarHub’s 2Q12F earnings may beat market expectations on the back of it.
• English Premier League bidding may haunt again, StarHub’s annual S$20m savings could disappear.
• HOLD StarHub for 5.9% yield as we raise TP to S$3.50 expecting 21 Scts DPS versus 20 Scts earlier.
• HOLD SingTel for 5% yield. Key concerns are Bharti’s contribution and startup cost for mobile advertising in Singapore.
Increasing popularity of Android phones is good news for the sector. M1 revealed that 70% of its new post-paid customers in 2Q12 had opted for Android phones. Telcos provide lower handset subsidy on Androids versus iPhones due to the cheaper retail price of Androids. This is likely to benefits SingTel and StarHub. In mid-August, we expect StarHub to beat market expectations by 12 % and report 2Q12 earnings of S$95m (23% y-o-y and 8% q-o-q). We like to highlight that the upcoming launch of iPhone5 (rumored to be in September end) could reverse the trend just like how the iPhone 4S did last year.
Two possible scenarios for English Premier League (EPL) rights in September 2012. Neither of the players has an incentive to bid higher for exclusive rights, as consumers can access the content through cross-carriage arrangements anyway. There are two possibilities depending on what is acceptable to the Premier League. (i) Both players place a common joint-bid; (ii) Each player bids on a non-exclusive basis so that cross-carriage does not apply. In either case, each player has to incur some cost of owning the content rights. We estimate that StarHub has benefitted at least S$20m annually due to the absence of cost for EPL rights and these benefits may disappear going forward. We don’t see much impact on SingTel due to the high cost-base of EPL rights.
Higher adoption of fiber broadband. The regulator has increased the weekly porting limit for fiber connections by 30% to 3100 from August 2012 onwards. 200 installations out of the quota will be for commercial buildings, expediting fiber adoption in the corporate space. This will reduce waiting time for fiber connections and benefit retail service providers (RSPs). RSPs have a chance to steal small and medium enterprise (SME) customers from SingTel now.
TELCOs – DBSV
Regulator tightens belt to press the pedal on fiber
What's new?
Singapore telecoms regulator IDA is raising the weekly fiber installation capacity to 3,100 per week from Aug 2 onwards. This is up 30% from 2,400 earlier and exceeds our forecast of a 15% rise highlighted in our report on SingTel released on 2nd July. A dynamic mechanism to raise capacity in line with demand has also been put in place.
200 installations out of the quota will be for commercial buildings. This is the most attractive pie for retail service providers as each commercial connection commands much higher ARPUs than residential connections. IDA wants OpenNet (the fiber backbone provider) to offer an activation period of 10 days from its side, unless building owners cause a delay in wiring up their buildings.
Our view
Slightly negative for SingTel but positive for others. The commercial broadband market represents the biggest slice of the market, accounting for an estimated 60% of the total, with residential accounting for less than 40%. SingTel is the leader in the commercial space with an estimated 80% share of the commercial broadband market while StarHub has less than 20% due to difficulties in accessing commercial buildings. SingTel has differentiated itself on the basis of its strong managed service portfolio, cloud computing and strong IT support. However, SingTel's market share and margins may still feel the heat as retail service providers offer services to price-sensitive small and medium (SME) customers. SingTel may barely achieve stable Singapore EBITDA in FY13F compared to our expectations of 3% growth. Ongoing re-structuring and its mobile advertising business are other cost pressures in the near term.
S-curve ahead as Singapore lags Malaysia in fiber adoption. Fiber adoption stands at 12% of rollout in Singapore versus 25% in Malaysia, due to the various bottlenecks the regulator IDA has identified and wants to quickly resolve. Compared to only 99k fiber subscribers in Singapore at the end of 2011, we project at least 150K subscribers to be added each year for the next three years in line with the "S curve".
No change to our TP and recommendations on stocks under our coverage.
TELCOs – DBSV
Regulator tightens belt to press the pedal on fiber
What's new?
Singapore telecoms regulator IDA is raising the weekly fiber installation capacity to 3,100 per week from Aug 2 onwards. This is up 30% from 2,400 earlier and exceeds our forecast of a 15% rise highlighted in our report on SingTel released on 2nd July. A dynamic mechanism to raise capacity in line with demand has also been put in place.
200 installations out of the quota will be for commercial buildings. This is the most attractive pie for retail service providers as each commercial connection commands much higher ARPUs than residential connections. IDA wants OpenNet (the fiber backbone provider) to offer an activation period of 10 days from its side, unless building owners cause a delay in wiring up their buildings.
Our view
Slightly negative for SingTel but positive for others. The commercial broadband market represents the biggest slice of the market, accounting for an estimated 60% of the total, with residential accounting for less than 40%. SingTel is the leader in the commercial space with an estimated 80% share of the commercial broadband market while StarHub has less than 20% due to difficulties in accessing commercial buildings. SingTel has differentiated itself on the basis of its strong managed service portfolio, cloud computing and strong IT support. However, SingTel's market share and margins may still feel the heat as retail service providers offer services to price-sensitive small and medium (SME) customers. SingTel may barely achieve stable Singapore EBITDA in FY13F compared to our expectations of 3% growth. Ongoing re-structuring and its mobile advertising business are other cost pressures in the near term.
S-curve ahead as Singapore lags Malaysia in fiber adoption. Fiber adoption stands at 12% of rollout in Singapore versus 25% in Malaysia, due to the various bottlenecks the regulator IDA has identified and wants to quickly resolve. Compared to only 99k fiber subscribers in Singapore at the end of 2011, we project at least 150K subscribers to be added each year for the next three years in line with the "S curve".
No change to our TP and recommendations on stocks under our coverage.
SingTel – DBSV
Three thorns – Bharti, currency and ICO
• Instead of easing, competition is intensifying in India; a weak Rupee compounds the problem further
• Upcoming Inter Connect Offer (ICO) may spur faster fiber adoption along the S-curve in Singapore
• The stock is trading at 13.4x PE versus 13.2x historical mean; Downgrade to HOLD as we see total potential returns of only 5% including dividends
Tariff cut of ~50% in India from May onwards. Leading operators including Bharti have lowered tariffs to 0.5 paisa per sec from 1.0 paisa through discount vouchers. At the same time, dealer commissions have also been raised substantially. We are not sure whether market leaders have embarked on these aggressive strategies to stem market share loss or whether small operators are trying to inflate their subscriber numbers before the expiry of 2G licenses.
Weak Indian Rupee (INR) is a key concern. INR has declined another 8% against SGD over the last 3 months. Normally this should have a 1% adverse impact on SingTel’s earnings. However, Bharti has a large USD denominated foreign debt which may result in significant forex losses. This could result in FY13F earnings growth coming in lower than our below consensus projection of 50% in INR terms.
Upcoming ICO to spur fiber adoption along the S-curve. In Singapore, regulator IDA is finalising the new ICO, which should help address key bottlenecks (installation quota) and have a regular review mechanism in place for the National Broadband Network. We expect 10-15% increase in the regular installation quota in 3Q12E and a similar increase in 4Q12E with six monthly reviews. An aggressive ICO could result in SingTel barely achieving stable Singapore EBITDA in FY13F compared to our expectations of 3% growth. There are other cost pressures in Singapore too.
Downgrade to HOLD with SOP based TP of S$3.29. The key change is weaker INR assumption in our valuation. SingTel has outperformed the STI by 8% over the last six months, which may not continue. We like SingTel’s strategy of venturing into mobile advertising space and its bold restructuring exercise. However, we expect to see cost pressures in the near term, before rewards in the longer term.
SingTel – DBSV
Three thorns – Bharti, currency and ICO
• Instead of easing, competition is intensifying in India; a weak Rupee compounds the problem further
• Upcoming Inter Connect Offer (ICO) may spur faster fiber adoption along the S-curve in Singapore
• The stock is trading at 13.4x PE versus 13.2x historical mean; Downgrade to HOLD as we see total potential returns of only 5% including dividends
Tariff cut of ~50% in India from May onwards. Leading operators including Bharti have lowered tariffs to 0.5 paisa per sec from 1.0 paisa through discount vouchers. At the same time, dealer commissions have also been raised substantially. We are not sure whether market leaders have embarked on these aggressive strategies to stem market share loss or whether small operators are trying to inflate their subscriber numbers before the expiry of 2G licenses.
Weak Indian Rupee (INR) is a key concern. INR has declined another 8% against SGD over the last 3 months. Normally this should have a 1% adverse impact on SingTel’s earnings. However, Bharti has a large USD denominated foreign debt which may result in significant forex losses. This could result in FY13F earnings growth coming in lower than our below consensus projection of 50% in INR terms.
Upcoming ICO to spur fiber adoption along the S-curve. In Singapore, regulator IDA is finalising the new ICO, which should help address key bottlenecks (installation quota) and have a regular review mechanism in place for the National Broadband Network. We expect 10-15% increase in the regular installation quota in 3Q12E and a similar increase in 4Q12E with six monthly reviews. An aggressive ICO could result in SingTel barely achieving stable Singapore EBITDA in FY13F compared to our expectations of 3% growth. There are other cost pressures in Singapore too.
Downgrade to HOLD with SOP based TP of S$3.29. The key change is weaker INR assumption in our valuation. SingTel has outperformed the STI by 8% over the last six months, which may not continue. We like SingTel’s strategy of venturing into mobile advertising space and its bold restructuring exercise. However, we expect to see cost pressures in the near term, before rewards in the longer term.