Telcos top picks in two outlook reports as volatility persists

M1, SingTel, DBS, Frasers Centrepoint Trust have emerged as key ‘buy’ calls

WITH global uncertainties carrying over from 2011 into the new year, telecommunications stocks have once again come up as top picks in two market outlook and strategy reports.

M1, SingTel, DBS, and Frasers Centrepoint Trust, in particular, have emerged as key ‘buy’ calls from both UOB Kay Hian Research and OCBC Bank’s Wealth Panel, in separate reports released on Friday.

Forecasting a 2012 Straits Times Index (STI) price to earnings (PE) ratio of 12.1x, UOB Kay Hian said the index’s valuation is ‘undemanding’ – at a 26 per cent discount to its long-term PE mean of 16.3x (since 1993).

‘Nevertheless, we think the discount may remain elevated in the near term, given the uncertain prospects for 2012 corporate earnings and lingering concerns over the euro debt crisis,’ said UOB Kay Hian.

The research house said investors should opt for a balance of sustainable high-yield stocks, selective retail Reits, and ‘undervalued laggards with specific stock catalysts’.

Apart from the telcos, UOB Kay Hian’s key ‘buys’ included CapitaLand and Ezion, while City Developments and NOL sat in its key ‘sells’ list. It also recently upgraded Wing Tai and Ho Bee to ‘buys’ due to their deep value after sharp share price corrections in December last year.

Meanwhile, OCBC Investment Research head Carmen Lee warned that even though share prices appear to have discounted weaker earnings expectations, ‘they may not have been fully priced in the worst case scenario’.

Said Ms Lee: ‘If the outlook deteriorates significantly, earnings estimates will need to be shaved further.’

With volatility persisting and investor confidence remaining fragile, the OCBC Wealth Panel said that it prefers quality and safer assets, and high dividend yielding defensive stocks.

Telecommunications aside, the OCBC team said that they continue to favour the healthcare and oil and gas sectors in 2012. Its picks for the year include Raffles Medical, Keppel Corp, Sembcorp Marine, Biosensors, and Golden Agri-Resources.

Hostile non-mobile

• Mobile sector could benefit from lower data-cap and adoption of Android phones.

• Intense competition in broadband and structural changes in pay TV may outweigh the positives.

• StarHub outperformed STI by 32% in 2011, downgrade to HOLD. Prefer SingTel on valuation grounds despite hiccups from weak Indian Rupee

Positive signs emerging in the mobile sector. Firstly, telcos are offering faster speeds (4G) and better quality of service (priority pass to premium customers), to encourage users to adopt lower data-cap. During 4G launch in Dec 2011, SingTel capped 4G data at 10GB versus 50GB on 3G and intends to lower 3G data cap with more 4G roll out in 2012 (see Table 1 on next page). Lower data-cap is likely to enhance data-revenue. Secondly, Android phones from Samsung & HTC support 4G and Near Field Communication (NFC), not available on iPhone yet. 4G support is crucial as telcos may start to offer 4G over smart phones by mid 2012. Besides NFC enabled phones will allow users to “tap” and pay at over 20K retail points and taxis from June 2012 onwards. Telcos stand to benefit from lower handset subsidies (than iPhone) and revenue sharing for certain Apps on Android platform.

StarHub faces uphill task in consumer broadband. StarHub offers broadband speeds of 50 & 100 Mbps on its Hybrid Co-axial Cable (HFC) network compared to SingTel offering up to 15 Mbps using ADSL technology. As National Broadband Network (NBN) reaches 95% of population in June 2012, many of the high-end customers could switch to lower-margin fibre plans. Meanwhile, in the corporate space, StarHub & M1 concede that NBN progress is quite slow due to the lack of control over service provisioning.

Structural changes for pay TV in the longer term. Under Next Generation Interactive Multimedia, Applications and Services (NIMS) project, regulators want to support contents from various providers accessible on a common set top box. The project is likely to be awarded to one of the three telcos in 1H12F and would be based on IPTV platform in our view. StarHub may need to support IPTV platform in addition to HFC platform.

StarHub is trading above +1SD valuations. We prefer SingTel for its (i) cheap valuation of 12x forward PE versus 16x for StarHub and 13x for M1. Downgrade StarHub to HOLD as we trim FY12F/13F earnings by 3%. Maintain HOLD on M1 as consensus FY12F earnings are 7% above ours. As mobile ARPU has not increased at all, fair value accounting for handsets may lead to disappointment in 2012F.

Buffet-style 3G pricing may go off the table

StarHub, SingTel may revise charges to deter hefty usage

(SINGAPORE) The telcos' crusade against virtually unlimited mobile data usage might soon be upon 3G shores. StarHub and SingTel are taking a good look at revising their 3G price plans, the two telcos told BT yesterday.

StarHub said that it may 'review current (3G) pricing plans and consider introducing usage-based data pricing', in response to BT's queries.

This, it said, was 'to ensure optimal network quality for our customers'. Currently, StarHub has three mobile broadband modem plans that offer unlimited data allowances. It also caps the local data usage bill at $30 a month for its mobile phone subscribers.

When it launches its own Long Term Evolution (LTE) – or 4G – network next year, it will not offer an unlimited data option, it said.

SingTel will be reviewing its 3G price plans, which include its mobile broadband plans that carry a data usage allowance of 50 gigabytes (GB).

This comes two days after it moved to start weaning high data-usage consumers off generous 3G data caps with a new 4G pricing structure.

By 2013, when 95 per cent of its users have access to the 4G network, new 4G data subscribers will have to make do with a 10GB cap on data, paying for the additional data that they use.

SingTel also revealed that 11 per cent of its 3G subscribers on dongles and tablets account for a staggering 60 per cent of data traffic.

'It's unsustainable and when you grow it, it becomes a challenge,' said Yuen Kuan Moon, SingTel executive vice-president, digital consumer group.

StarHub and M1 did not reveal their own data figures, but industry observers believe the usage patterns are similar to SingTel's.

M1 is staying tight- lipped on both its existing 3G price plans and approach to pricing LTE usage next year.

'We regularly review all our service offerings to ensure they are compelling and competitive,' its spokesman told BT.

It has the same narrow view of unlimited data usage, however. 'Mobile network resources are limited, and the experience of the majority of customers should not be adversely affected by a minority of customers who regularly consume large amounts of data.'

While SingTel's new 4G service currently applies only to dongle modems, StarHub's review of its 3G price plan could apply across several devices – dongles, smartphones and tablets.

Analysts have pointed out for a while that the real battle for average revenue per user will be fought not over the dongle platform, but on smartphones and tablets, where increasing data usage is cannibalising lucrative voice calls and SMSes.

Buffet-style 3G pricing may go off the table

StarHub, SingTel may revise charges to deter hefty usage

(SINGAPORE) The telcos' crusade against virtually unlimited mobile data usage might soon be upon 3G shores. StarHub and SingTel are taking a good look at revising their 3G price plans, the two telcos told BT yesterday.

StarHub said that it may 'review current (3G) pricing plans and consider introducing usage-based data pricing', in response to BT's queries.

This, it said, was 'to ensure optimal network quality for our customers'. Currently, StarHub has three mobile broadband modem plans that offer unlimited data allowances. It also caps the local data usage bill at $30 a month for its mobile phone subscribers.

When it launches its own Long Term Evolution (LTE) – or 4G – network next year, it will not offer an unlimited data option, it said.

SingTel will be reviewing its 3G price plans, which include its mobile broadband plans that carry a data usage allowance of 50 gigabytes (GB).

This comes two days after it moved to start weaning high data-usage consumers off generous 3G data caps with a new 4G pricing structure.

By 2013, when 95 per cent of its users have access to the 4G network, new 4G data subscribers will have to make do with a 10GB cap on data, paying for the additional data that they use.

SingTel also revealed that 11 per cent of its 3G subscribers on dongles and tablets account for a staggering 60 per cent of data traffic.

'It's unsustainable and when you grow it, it becomes a challenge,' said Yuen Kuan Moon, SingTel executive vice-president, digital consumer group.

StarHub and M1 did not reveal their own data figures, but industry observers believe the usage patterns are similar to SingTel's.

M1 is staying tight- lipped on both its existing 3G price plans and approach to pricing LTE usage next year.

'We regularly review all our service offerings to ensure they are compelling and competitive,' its spokesman told BT.

It has the same narrow view of unlimited data usage, however. 'Mobile network resources are limited, and the experience of the majority of customers should not be adversely affected by a minority of customers who regularly consume large amounts of data.'

While SingTel's new 4G service currently applies only to dongle modems, StarHub's review of its 3G price plan could apply across several devices – dongles, smartphones and tablets.

Analysts have pointed out for a while that the real battle for average revenue per user will be fought not over the dongle platform, but on smartphones and tablets, where increasing data usage is cannibalising lucrative voice calls and SMSes.

Telcos and the BPL’s moving goalposts

THE next cycle of bidding for the Barclays Premier League will be for the 2013- 2016 period. That is some ways off, which is a good thing. Analysts will need all the time they get to figure out who needs the BPL broadcast rights more: StarHub or SingTel?

What used to be so clear – that whoever exclusively carries the BPL is broadcasting king – is now more of a conundrum, thanks to the cross-carriage law.

Now, StarHub and SingTel will be more preoccupied with not ending up the court jester instead. With the cross-carriage law, whoever clinches the ‘exclusive’ rights will have to let its competitor air the matches for its own viewers.

This is good news for football fans, but it makes analysts wish for the good old days when SingTel had simply paid a large chunk of change for the 2010-2013 package of truly exclusive BPL rights.

Then, the moaning had been fairly straightforward – the bidding war over the BPL rights led to the Fifa World Cup people holding both operators hostage for World Cup 2010. Consequently, viewers paid about 4.5 times more to watch the World Cup in 2010 than in 2006. Everyone (especially those who bet against Spain) was unhappy.

Similarly, analysis had been relatively simple. Football fans swelled the ranks of SingTel’s mio TV subscriber base, which currently stands at about 335,000, up from 155,000 at the end of 2009. BPL had become a feather in mio TV’s cap and a thorn in StarHub’s side.

Now, both operators have their own reasons for not wanting to bid each other out of the BPL park; both will be able to offer it to their own viewers, whether or not they get the rights.

SingTel, chastened by its last BPL splash-out, might want to be seen exercising some restraint. StarHub, with almost 550,000 subscribers who will get the BPL in any case, does not need to fear attrition.

In one way, the cross-carriage law would have fulfilled its objective of trying to keep content costs under control.

But however tidy policy is, life is messier. So, StarHub and SingTel also have equally compelling reasons to have another bidding slap-fight.

‘It’s actually quite difficult to rate the impact on the whole thing,’ Nomura analyst Sachin Gupta told BT. ‘Either telco could pay over the top as the potential customers could increase a lot without much incremental cost (it can access customers across both platforms). But at the same time, the scope to win the customer outright could diminish a fair bit too.’

Anyone looking for clues in the recent Euro 2012 broadcast deal that StarHub won the rights to will be disappointed. Unlike the three-year BPL deal, it is a one-off event and SingTel’s lack of enthusiasm is no indicator of how it feels about the BPL. In Kardashian terms, Euro 2012 is the Khloe to BPL’s Kim.

SingTel, however, might have more to brace itself against. If one hazards a guess that a fair number of mio TV subscribers signed up just for the BPL while hanging on to the StarHub account to placate the missus, a lot might pivot on what they will do after 2013, when they can watch the BPL on StarHub as well.

Some attrition might be inevitable, regardless of whether SingTel clinches the 2013-2016 BPL rights.

SingTel’s solution, then, might come from outside football. ‘SingTel still needs a unique selling point, and (BPL) is the only USP. They don’t have the movie content nor the documentaries,’ an analyst with a local house told BT.

The cross-carriage law might work in SingTel’s favour, as it is already reshaping the way operators negotiate other types of content. Earlier this year, StarHub renewed its deal with Fox International Channels on a non-exclusive basis, leaving it open for the first time to other players such as SingTel.

While BT understands that SingTel might not have found Fox’s asking price to its liking, it could still go on to bid for other programmes as more non-exclusive deals are drawn up by its competitor.

With its current BPL dominance winding down in 2013, there is still time to beef up its portfolio. Similarly, local men will have enough time to find a real hobby. One that involves being outdoors.