Category: SingTel
SingTel – DBSV
Needs higher payout ratio to outperform
• Bharti may grow slower than expected, eroding SingTel’s appeal as a cheap proxy to Bharti.
• Slow adoption of Android phones in Singapore is not helping SingTel either.
• Downgrade to HOLD with lower TP of S$3.20. Special dividends cannot be ruled out with 4Q11 results in order to compensate for lack of earnings growth.
Trimmed FY12F/13F group earnings by 4% / 6% mainly due to Bharti. While improved competitiveness in India and margin improvement in Africa bode well for Bharti, we underestimated the cost pressure from 3G rollout in India. Keeping in mind, higher depreciation & amortization and tax expenses, we downgraded Bharti’s earnings growth in FY12F to 15% from 30% earlier.
Slow adoption of Android phones. Singapore continues to lag behind markets like US and UK in terms of popularity of Android based phones, which require lower subsidies than iPhones. Higher breakeven costs of iPhones may continue to burden the margins of cellular players in Singapore.
Needs higher payout ratio to outperform in our view. We are projecting a 70% payout ratio for FY11F/12F, towards the top end of SingTel’s guidance of 55%-70%. Given non-compelling growth prospects, SingTel needs to (i) increase its earnings payout ratio to ~80% to formulate an attractive (~6.5%) dividend yield, or (ii) perform capital management proactively on top of its 70% payout ratio. Downgrade to HOLD with revised SOTP based TP of S$3.20. The stock is trading at 12.5x FY12F PE below its 4-year average of 13.2x. As such, downside risk is also limited in our view.
SingTel – DBSV
Needs higher payout ratio to outperform
• Bharti may grow slower than expected, eroding SingTel’s appeal as a cheap proxy to Bharti.
• Slow adoption of Android phones in Singapore is not helping SingTel either.
• Downgrade to HOLD with lower TP of S$3.20. Special dividends cannot be ruled out with 4Q11 results in order to compensate for lack of earnings growth.
Trimmed FY12F/13F group earnings by 4% / 6% mainly due to Bharti. While improved competitiveness in India and margin improvement in Africa bode well for Bharti, we underestimated the cost pressure from 3G rollout in India. Keeping in mind, higher depreciation & amortization and tax expenses, we downgraded Bharti’s earnings growth in FY12F to 15% from 30% earlier.
Slow adoption of Android phones. Singapore continues to lag behind markets like US and UK in terms of popularity of Android based phones, which require lower subsidies than iPhones. Higher breakeven costs of iPhones may continue to burden the margins of cellular players in Singapore.
Needs higher payout ratio to outperform in our view. We are projecting a 70% payout ratio for FY11F/12F, towards the top end of SingTel’s guidance of 55%-70%. Given non-compelling growth prospects, SingTel needs to (i) increase its earnings payout ratio to ~80% to formulate an attractive (~6.5%) dividend yield, or (ii) perform capital management proactively on top of its 70% payout ratio. Downgrade to HOLD with revised SOTP based TP of S$3.20. The stock is trading at 12.5x FY12F PE below its 4-year average of 13.2x. As such, downside risk is also limited in our view.
SingTel – CIMB
Bharti’s 4Q11 was in line
Bharti’s 4Q11 results
Maintain Underperform. SingTel’s Indian associate, Bharti, reported FY11 results that met estimates with core profit 2% ahead of consensus (we use these for our SingTel forecasts). Consolidated topline was up 3% qoq, aided by elasticity gains in Africa and India though margins had dropped in India, partially offset by Africa. We make no adjustments to our earnings forecasts, SOP-based target price of S$3.29 and UNDERPERFORM rating for SingTel pending its results announcement on 12 May. Potential de-rating catalysts are regulatory risks in Thailand and competitive risks in Australia and Singapore.
The details
Lower qoq. Bharti’s consolidated revenue rose 3% qoq, aided by growth in both its Indian/South Asian (+3% qoq) and African operations (+3% qoq) as elasticity gains occurred in both markets. Consolidated EBITDA margins shed 0.3% pt qoq as India booked weaker margins (-0.7% pt qoq) excluding rebranding costs. This was partially offset by its African operations. The lower margins, higher interest expense from higher debt for 3G and Africa and tax caused core profit to fall 19% qoq.
More on India. Revenue grew 3% qoq on the back of increased elasticity. RPM slid only 2% qoq, pointing to intense but rational competition as RPMs have stabilised over the past few quarters. However, margins were hurt by higher network opex (addition of 3G sites, expansion in Bangladesh and Sri Lanka and its DTH business), higher access charges and spectrum fees. Mobile margins have been dropping, falling from 36.4% in 4Q10 to 33.3% in 4Q11 on higher spectrum fees.
3G and MNP. Bharti has launched 3G services in nine of the 13 circles for which it had won spectrum. It is awaiting clearance before proceeding with the remaining four circles. It is in talks with other leading operators to have a nationwide 3G presence. For MNP, there has not been much of an impact as only 1.1% of the subscriber base had requested to port and Bharti is capturing a disproportionate share of that number.
More on Africa. The bulk of tariff correction in Africa has been completed. It has also gained revenue market share in all the markets it operates in. Through the implanting
of its unique business model, it has begun to lower costs and costs/minute should continue to drop over the next 4-6 quarters. While pricing power is important, Bharti would look to reducing tariffs as costs continue to fall over this period. EBITDA margins rose 1% pts qoq (exclude re-branding initiative in 3Q) in 4Q11 and Bharti expects positive margins to continue as scale benefits flow through and as it cuts costs further. One area of potential margin concern is access charges which rose 12% qoq. Bharti is looking to drive more off-net traffic as it strives to have a more equal mix in on-net and off-net traffic. It expects the impact from traffic rebalancing to ease over the next two quarters. Other headwinds in Africa pertain to know-your-customer requirements in many countries in Africa which are more stringent than Indian requirements. Another headwind pertains to supply constraints from some strategic partners but this constraint is only expected to be short term.
DPS declared and capex guidance. Bharti declared a dividend of Rp1/share following its practice of declaring dividends in 4Q since its maiden dividend in 2009. For FY12, Bharti intends to spend US$2.9bn-3.1bn on capex. India would consume US$1.5bn, Africa, US$1bn-1.2bn and the tower business, US$0.4bn.
Valuation and recommendation
Maintain UNDERPERFORM. We make no adjustments to our forecasts, SOP-based target price of S$3.29 and UNDERPERFORM rating pending SingTel’s results on 12 May. Potential de-rating catalysts are regulatory risks in Thailand and competitive risks in Australia and Singapore.
SingTel – CIMB
Bharti’s 4Q11 was in line
Bharti’s 4Q11 results
Maintain Underperform. SingTel’s Indian associate, Bharti, reported FY11 results that met estimates with core profit 2% ahead of consensus (we use these for our SingTel forecasts). Consolidated topline was up 3% qoq, aided by elasticity gains in Africa and India though margins had dropped in India, partially offset by Africa. We make no adjustments to our earnings forecasts, SOP-based target price of S$3.29 and UNDERPERFORM rating for SingTel pending its results announcement on 12 May. Potential de-rating catalysts are regulatory risks in Thailand and competitive risks in Australia and Singapore.
The details
Lower qoq. Bharti’s consolidated revenue rose 3% qoq, aided by growth in both its Indian/South Asian (+3% qoq) and African operations (+3% qoq) as elasticity gains occurred in both markets. Consolidated EBITDA margins shed 0.3% pt qoq as India booked weaker margins (-0.7% pt qoq) excluding rebranding costs. This was partially offset by its African operations. The lower margins, higher interest expense from higher debt for 3G and Africa and tax caused core profit to fall 19% qoq.
More on India. Revenue grew 3% qoq on the back of increased elasticity. RPM slid only 2% qoq, pointing to intense but rational competition as RPMs have stabilised over the past few quarters. However, margins were hurt by higher network opex (addition of 3G sites, expansion in Bangladesh and Sri Lanka and its DTH business), higher access charges and spectrum fees. Mobile margins have been dropping, falling from 36.4% in 4Q10 to 33.3% in 4Q11 on higher spectrum fees.
3G and MNP. Bharti has launched 3G services in nine of the 13 circles for which it had won spectrum. It is awaiting clearance before proceeding with the remaining four circles. It is in talks with other leading operators to have a nationwide 3G presence. For MNP, there has not been much of an impact as only 1.1% of the subscriber base had requested to port and Bharti is capturing a disproportionate share of that number.
More on Africa. The bulk of tariff correction in Africa has been completed. It has also gained revenue market share in all the markets it operates in. Through the implanting
of its unique business model, it has begun to lower costs and costs/minute should continue to drop over the next 4-6 quarters. While pricing power is important, Bharti would look to reducing tariffs as costs continue to fall over this period. EBITDA margins rose 1% pts qoq (exclude re-branding initiative in 3Q) in 4Q11 and Bharti expects positive margins to continue as scale benefits flow through and as it cuts costs further. One area of potential margin concern is access charges which rose 12% qoq. Bharti is looking to drive more off-net traffic as it strives to have a more equal mix in on-net and off-net traffic. It expects the impact from traffic rebalancing to ease over the next two quarters. Other headwinds in Africa pertain to know-your-customer requirements in many countries in Africa which are more stringent than Indian requirements. Another headwind pertains to supply constraints from some strategic partners but this constraint is only expected to be short term.
DPS declared and capex guidance. Bharti declared a dividend of Rp1/share following its practice of declaring dividends in 4Q since its maiden dividend in 2009. For FY12, Bharti intends to spend US$2.9bn-3.1bn on capex. India would consume US$1.5bn, Africa, US$1bn-1.2bn and the tower business, US$0.4bn.
Valuation and recommendation
Maintain UNDERPERFORM. We make no adjustments to our forecasts, SOP-based target price of S$3.29 and UNDERPERFORM rating pending SingTel’s results on 12 May. Potential de-rating catalysts are regulatory risks in Thailand and competitive risks in Australia and Singapore.
TELCOs – BT
When roaming rates drop, S’pore telcos may pay a higher price
They have more to lose than their M’sian counterparts: analysts
SINGAPOREAN operators are likely to be hit harder than their Malaysian counterparts when the two countries start to ring in cheaper mobile roaming rates from next month.
This is because a higher proportion of their sales come from overseas calls. In addition, Singapore Telecommunications, StarHub and M1 have more inbound and outbound roaming usage on their networks in comparison to Malaysian operators, analyst firm DMG Research said in a report yesterday.
On Thursday, a two-year effort to curb the high cost of cellular roaming between Singapore and Malaysia finally bore fruit with both governments announcing that fees for making and receiving calls will be slashed by 20 per cent from next month and a further 10 per cent a year later.
The cost of sending text messages back home from across the causeway will be cut by 30 per cent in May and halved 12 months later.
Once fully implemented, it would mean that the cost of making a Singapore call from Malaysia would be slashed from 59 cents per minute currently to 46 cents in 2012. Sending an SMS would cost 30 cents by next May, compared with the prevailing rate of 60 cents per text message.
‘We estimate that roaming revenue makes up circa 10 to 25 per cent of Singapore telcos’ mobile revenue versus 8 to 10 per cent for Malaysian telcos,’ DMG said.
‘A reciprocal 20 per cent reduction in roaming tariffs between the two countries would slice off Singapore mobile revenue by 1 to 2 per cent compared to an estimated 0.5 to 0.9 per cent for Malaysian telcos, all else being equal,’ the company explained.
Malaysian operator Celcom had previously forecast its sales could shrink by 40 million ringgit (S$16.5 million) when the rate cuts are pushed through, while rival Digi said the impact on its revenue is marginal. Maxis on the other hand, expects sales to be hit to the tune of 6 million ringgit (S$2.5 million).
Local operators declined to reveal Malaysia’s contribution to their international services revenue but all three admitted the country is among their top mobile roaming destinations.
For its last financial year, SingTel derived $563 million from international call services while M1’s full-year revenue from this business segment stood at $129 million.
StarHub’s mobile roaming income is folded under its mobile sales, which stood at $302.7 million in 2010.
Instead of dragging down their top-line, local telcos say they are confident that the tariff reductions would instead boost their income by spurring greater usage.
‘We believe the downside on mobile revenues will be mitigated by the fact that operators actively share and swap minutes with one another,’ DMG added.
Other analysts BT spoke to also said local operators are likely to suffer a short-term hit but they should be no worse for wear in the long run.
This is the first time such a mobile roaming accord has been struck between two Asean member countries.
Authorities believe more could soon jump on the bandwagon, with Thailand being seen as the next likely candidate.