Category: SingTel
TELCOs – OCBC
Expects steady growth in 2015
- Stable FY15 outlook
- Rising interest rate threat
- Yields should remain fairly attractive
Stable outlook for 2015
For FY15, the three local telcos have guided for a relatively stable outlook. M1 is probably the most optimistic among them, as it is expecting moderate earnings growth (in single digit) and slightly lower capex of S$120m this year. On the other hand, StarHub eyes low single-digit revenue growth, but it has kept its EBITDA margin guidance at 32%; as this is lower than the 33.7% achieved in FY14, it could translate to a flat earnings growth. Singtel has kept its stable group revenue and EBITDA outlook unchanged.
Mobile market remains stable
On the main mobile market, we note that while there has been a pickup in net adds in subscribers as well as ARPUs in the post-paid space, mobile penetration continues to edge lower, suggesting that further growth in mobile revenue will have to be driven by increased data usage. The telcos are hopeful that the higher 4G speeds will trigger more data usage; but anecdotal evidence suggests that subscribers remain mindful of their data caps.
Some signs that broadband market is more rational
While telcos continue to expect the broadband market to remain competitive, we believe that there are signs that the competition is getting more rational; this as the ISPs are no longer using price to grab market share. Instead, more are starting to offer speed upgrades to entice customers to sign up with them. As the incremental cost of these speed upgrades are quite minimal, margins should also start to improve.
Interest rate threat looming
With telecom stocks being pitched as defensive stocks and “prized” for their stable and attractive dividend yields, the threat of higher interest rate is likely to be a concern. However, we believe that as long as local interest rates do not rise sharply, we do not expect the telcos to lose their appeal. Maintain NEUTRAL on the sector, with a preference for Singtel (HOLD, S$4.16).
Singtel – CIMB
Singapore blues, Optus bliss
SingTel’s 1QFY15 core net profit was below expectations, forming 22.1% of our full-year estimate (consensus: 23.0%). Associate earnings maintained its growth trajectory but came in lower vs. our forecast, largely due to the steep depreciation in the rupiah yoy. Elsewhere, Singapore came in weaker, dragged by higher cost, but this was offset by Optus, which surprised on the upside with better-than-expected margins. Management reaffirmed its guidance for FY15. We maintain our Add rating and SOP-based target price for now pending its results conference call later this morning. A likely re-rating catalyst is the continued turnaround in its earnings.
Singapore dragged by higher cost
Singapore’s results were below expectations. While revenue was 3.9% higher yoy, EBITDA fell 5.2% yoy. The margin slid 3.1% pts yoy to 32.0% due to lower enterprise earnings given more intense NBN competition and price reduction on contract transition for a large government project. There were also greater Digital Life losses and World Cup-related costs incurred in 1QFY15. While the enterprise business will remain under pressure, we expect Singapore earnings to start improving from FY16 onwards, boosted by data tariff adjustments.
Australia improves on lower cost
Optus’s results were above our expectations. Despite lower mobile termination rates, revenue fell only 2.8% yoy while EBITDA rose 4.4% yoy. The margin rose 200bp to 29.0% on lower subscriber acquisition cost (-13.6% yoy) and cost of sales. Operationally, the mobile subscriber base consolidated further by 0.3% qoq. We believe Optus will gain market traction in FY16 once its marketing initiative starts to pay off and its 4G-700MHz network goes ‘live’ in early 2015.
Associates to stay on growth track
Associate contributions improved, led by Bharti and Globe. However, it is tracking lower vs. our full-year forecast on weaker Telkomsel contributions caused by a steep 18.5% yoy depreciation in the rupiah. Nevertheless, associate currencies have stabilised and negative forex effects should abate in the coming quarters. Operationally, associates performed within expectations; Bharti was the star performer, with strong revenue growth and margin expansion.
Singtel – Maybank Kim Eng
Beefing up digital ad capability
- Paying USD359m for Adconian and Kontera to beef up the capability of Amobee in digital advertising market.
- While marginally EBITDA dilutive in the short term, the acquisitions could help Amobee to break even earlier.
- Our BUY case of growth resumption starting FY3/15E stays intact. Maintain BUY with a SOTP TP of SGD4.35.
What’s New
SingTel is pressing ahead into the adjacent digital mobile advertising space with its subsidiary Amobee paying USD359m for Adconian (for USD209m) and Kontera Technologies (USD150m). We expect the acquisitions to be neutral for SingTel. The acquisitions will be EBITDA-dilutive in the short term but they are in line with market expectations given that SingTel had, up until now, only used a fraction of the SGD2b budgeted for Digital Life investments. Maintain BUY, TP SGD4.35.
What’s Our View
This development will transform Amobee from a mere digital advertising company operating on a single channel/screen into an all-rounded mobile-led digital marketing company that provides advertising & data analytics solutions on multiple channels/screens on a real-time basis. This makes sense, as the market has evolved since 2012 when SingTel first bought Amobee.
Notwithstanding the short-term EBITDA dilution, Digital Life investments were never about short term returns. Revenue and profit targets aside, the investee companies’ bigger objective is to enable the operating companies to better compete via more advanced technology.
With the standalone investee companies aiming to break even in 3-5 years, there is a good chance that Adconian and Kontera will accelerate the process for Amobee. Adconian will triple Amobee’s existing salesforce and both sides will have additional services and solutions to sell, while the new capabilities brought by Kontera will open up new markets for Amobee.
Singtel – Maybank Kim Eng
Beefing up digital ad capability
- Paying USD359m for Adconian and Kontera to beef up the capability of Amobee in digital advertising market.
- While marginally EBITDA dilutive in the short term, the acquisitions could help Amobee to break even earlier.
- Our BUY case of growth resumption starting FY3/15E stays intact. Maintain BUY with a SOTP TP of SGD4.35.
What’s New
SingTel is pressing ahead into the adjacent digital mobile advertising space with its subsidiary Amobee paying USD359m for Adconian (for USD209m) and Kontera Technologies (USD150m). We expect the acquisitions to be neutral for SingTel. The acquisitions will be EBITDA-dilutive in the short term but they are in line with market expectations given that SingTel had, up until now, only used a fraction of the SGD2b budgeted for Digital Life investments. Maintain BUY, TP SGD4.35.
What’s Our View
This development will transform Amobee from a mere digital advertising company operating on a single channel/screen into an all-rounded mobile-led digital marketing company that provides advertising & data analytics solutions on multiple channels/screens on a real-time basis. This makes sense, as the market has evolved since 2012 when SingTel first bought Amobee.
Notwithstanding the short-term EBITDA dilution, Digital Life investments were never about short term returns. Revenue and profit targets aside, the investee companies’ bigger objective is to enable the operating companies to better compete via more advanced technology.
With the standalone investee companies aiming to break even in 3-5 years, there is a good chance that Adconian and Kontera will accelerate the process for Amobee. Adconian will triple Amobee’s existing salesforce and both sides will have additional services and solutions to sell, while the new capabilities brought by Kontera will open up new markets for Amobee.