Category: SingTel
TELCOs – BT
Clearer skies for mobile sector
THE smartphone bug that took a bite at all three telcos’ earnings in the past year is finally expected to loosen its grip in the coming months. While this will bring some much-needed reprieve for their core mobile businesses, the onset of higher pay-TV content costs and possible broadband price erosion may mean the bottom lines from their local operations could be little changed at the end of 2011.
In the past 12 months, the once-scarce iPhone became an accessory of the masses as Apple ditched its one-operator strategy in favour of broader distribution.
This triggered a mad smartphone rush among local consumers as both Apple and non-Apple touch-screen handsets flew off the shelves, ending up in the hands of teenagers and grandparents alike.
However, the aggressive subsidies that came with these phones meant all three operators had to bear with some short-term pain initially before they could reap any long-term gain.
Handset costs rose to 33 per cent of sales at M1, while SingTel and SingTel also experienced steep hikes over the course of 2010.
The good news for the trio is that the end appears to be in sight and margins should start to improve from now on.
In fact, StarHub is already showing early signs of turning the corner in the fourth quarter of 2010. Profit from its operations grew 12 per cent in Q4 to $99.7 million from a year ago, while cost of sales fell 9 per cent to $210 million.
Smartphone penetration among postpaid subscribers now stands at around 60 per cent across SingTel, StarHub and M1. Most handset users made the transition in 2010 and are now locked into two-year contracts.
Moreover, smartphone adoption is not likely to shoot past the 80 per cent mark as there is still a large pool of users, such as the elderly, who are resistant to the switch.
As the handset fever subsides, and the bane of higher subsidies eases, telcos can finally sit back and start to reap the fruits of their labour. Telcos have previously stated that they would require three to six months to recoup the subsidy for a smartphone user and this should happen in 2011.
In addition, the coming tablet glut, including the much-hyped iPad 2, could give their mobile subscriptions a further boost.
This is because 3G-enabled touch-screen slates can boost cellular revenue without the bane of incurring an upfront loss. All three telcos have already introduced iPad-specific data plans and more competitive packages could be launched in response to the tablet onslaught in the coming months.
A few things could, however, tilt the balance. In particular, the launch of another market-moving device such as the iPhone 5 could spark mass upgrades and drag the telcos back to square one.
However, the timeline for its launch remains unclear. Even if the fifth-generation Apple phone is released within the next few months, it should only reach local shores in the third or fourth quarter, and consequently, the pinch should only be felt in 2012.
While mobile margins are set to improve, the impact could be negated by higher content acquisition costs. This is particularly true for SingTel and M1.
Having established a beachhead among local sports fans with the Barclays Premier League, SingTel has laid down the gauntlet by declaring its intention to conquer more subscriber segments. This would involve the acquisition of new programme genres.
The same is true for M1 if it wants to improve on its nascent ‘1box’ pay-television offering. Despite the introduction of the government’s cross-carriage pay-TV policy this year, it is unlikely that content owners would drastically reduce the premiums they place on their offerings.
On the broadband front, the much-prophesied competition that will arise from the dawn of fibre-optics in Singapore will not materialise this year.
Several hiccups now stand in the way of broader adoption. On the one hand, a large number of condominium residents are still cut off from ultra high-speed broadband due to disagreements over cabling procedures. On the other, operators such as SingTel and StarHub have little incentive to push for fibre-optic adoption for the time being as it could cannibalise their existing broadband revenue streams.
The rivalry may intensify towards the end of this year when the new network nears completion but status quo should be maintained in the interim.
In recessionary times, the stable nature of telecommunications operators is a much sought-after virtue but this becomes less attractive when an economic boom is at hand. This can be seen by recent ‘underweight’ calls that have recently been placed on the telco industry.
However, the sector’s high-dividend yield, coupled with its defensive nature, means it should still be worthwhile consideration in any smart investor’s portfolio.
SingTel – BT
SingTel Q3 profit notches up 0.8%
The telco was dragged by weak performance from regional associates
A WEAKER performance across most of Singapore Telecommunications’ (SingTel) key regional associates resulted in a largely flaccid third quarter for the company, with its net profit inching up 0.8 per cent to $998 million, from $991 million a year earlier.
Earnings per share for the three months ended Dec 31, 2010, rose marginally to 6.27 cents, from 6.22 cents a year earlier. Operating revenue grew 5.7 per cent to $4.7 billion, from $4.45 billion.
The result was better than the average net income forecast of $925 million from four analysts polled by Bloomberg. Industry watchers had issued a more ominous forecast for SingTel’s third-quarter results due to the continued weakening of its associate earnings, in particular from Indian operator Bharti.
Share of ordinary pre-tax profits from six regional associates fell 12.8 per cent to $488 million in its fiscal third quarter.
SingTel, which derives 74 per cent of its Ebitda (earnings before interest, tax, depreciation and amortisation) from overseas, continues to be weighed down by the price of Bharti’s expansion into South Africa.
In June last year, Bharti, in which SingTel has a 32 per cent stake, successfully acquired the 15 South African mobile assets belonging to Kuwaiti conglomerate Zain.
As a result, pre-tax profit contributions from the Indian operator fell 21.7 per cent over the year to $184 million in Q3. Bharti’s profitability was impacted by the financing costs of the Zain acquisition as well as foreign currency losses.
It also incurred additional costs from the re-launching of a ‘unified’ Bharti brand across its key markets, according to SingTel Group CEO Chua Sock Koong.
The silver lining, she added, is that Bharti’s operations are showing signs of recovery.
‘In Africa, we’ve seen an improvement in (Bharti’s) Ebitda margin (sequentially),’ she told reporters at the group’s results briefing yesterday.
Beyond Bharti, SingTel’s bottom line was also impacted by poorer performances from Indonesia’s Telkomsel and Filipino operator Globe.
Telkomsel’s pre-tax contributions fell 10 per cent to $214 million and Globe’s contribution plunged 26.6 per cent to $40 million as a result of heightened competition in the two countries.
SingTel’s investments in Pacific Bangladesh Telecom Ltd (PBTL) and Warid continue to be in the red, chalking up pre-tax losses of $4 million and $14 million respectively.
The sole bright spot among the firm’s regional portfolio was AIS in Thailand, which saw its pre-tax contributions climb 31.3 per cent to $68 million in Q3.
However, the Thai operator is now embroiled in a tussle with state-owned telecommunications firm TOT Public company over the latter’s claim for damages.
TOT is seeking compensation from Thai operators, including AIS, for unpaid access charges and alleged losses from controversial concession deals that were sanctioned by past governments.
SingTel’s chief financial officer Jeann Low reiterated AIS’ position that the demands have no legal standing and hence the company did not make a provision for these claims.
However, they have been classified as a ‘contingent liability’ for ‘good corporate governance’, she added.
On its home turf, net income from SingTel’s Singapore operations was up marginally by 1 per cent to $348 million.
Sales and profitability improved across its telco as well as IT and engineering business as the recurring bane of handset subsidies finally started to ease in the third quarter.
Its mio TV revenue stood at $21 million in Q3. The company added 19,000 new pay-television customers during the period to take its tally to 264,000.
SingTel’s Australian unit Optus recorded a 3.9 per cent gain in Q3 net profit to $218 million on the back of strong mobile subscriber growth.
For the first nine months of its current fiscal year, the operator’s group net profit fell 2 per cent to $2.8 billion, while revenue rose 8.3 per cent to $13.4 billion.
SingTel shares closed four cents lower at $3.05 yesterday.
SingTel – CIMB
A mixed bag
• In line. Annualised 9MFY11 core net profit matches CIMB and market expectations with respective variances of -1% and -3%. The results were characterised by: 1) strong contributions by SingTel Singapore as EBITDA margins expanded; 2) higher Optus contributions supported by a 5% qoq rise in the A$; and 3) weak contributions from associates. SingTel has reiterated its guidance. We maintain our earnings forecasts, S$3.29 SOP target price and UNDERPEFORM rating. Likely de-rating catalysts are: 1) regulatory issues in India surrounding one-off fees and renewal fees for spectrum; 2) a more aggressive Telstra in Australia, and 3) margin pressure in Singapore on content costs and mioTV’s expansion. SingTel will be hosting a conference call today at 11am Singapore time.
• Singapore margins expanded. SingTel Singapore had a strong quarter where its EBITDA margins expanded 2.4% pts qoq on the back of lower subscriber acquisition costs, although the last calendar quarter was a festive one. We believe this was due to a low base in the previous quarter when the iPhone 4 was launched. Revenue was also seasonally powered by IT sales as companies completed their projects by year-end. As a result, 3Qcore net profit jumped 18% qoq.
• A$ bolstered Optus’s contributions. Optus’s 3Q revenue rose 7.7% qoq, driven by a 5% qoq appreciation of the A$ against the S$. EBITDA margins were broadly unchanged, while core net profit was flat qoq.
• Associates were weak. Associate 3Q PBT fell 8.5% qoq, dragged down by Telkomsel (-7% qoq), Bharti (-12% qoq) and Globe (-18% qoq). Telkomsel’s contribution was diluted by a 4% qoq depreciation of the rupiah vs. the S$. Its revenue was also affected by “heightened market competition as many aggressive price promotions were launched” while EBITDA was flat qoq in rupiah terms. Bharti’s contribution was affected by fair value losses from mark-to-market valuation of foreign currency liabilities. Globe was affected by stiff competition, on unlimited voice and SMS offerings.
TELCOs – OCBC
Little impact from Telecom Code Revision
Revisions to Telecom Competition Code. The Infocomm Development Authority of Singapore (IDA) has made several revisions to the Telecom Competition Code (TCC) with effect from 21 Jan 2011. One of the key changes is a clause that prohibits telecom licensees from “cross-terminating” a consumer’s service agreement for a breach of another service agreement from an affiliated operator; this means that the telco cannot exert undue pressure on consumers to make payment of disputed charges by threatening to terminate other services (unless offered under the same service agreement). Another key addition is that telcos will no longer be allowed to charge consumers after a free trial service has ended unless they obtained express agreement from the consumer. Other changes to TCC aim to further promote competition, which include the ability for the IDA to apply a prohibition against abuse of dominant position to any licensees that it finds to have significant market power although the regulator has yet to classify them as Dominant Licensees.
More protection for consumers. Overall, these revisions are more to safeguard the country’s growing pool of mobile and broadband users. As of Oct 2010, IDA data shows that Singapore has around 7.2m mobile subscribers and boosts of a mobile penetration rate of 142.1%; the nation also has around 7.5m broadband users with a penetration rate of 183.5%. However, we believe that these revisions are unlikely to have a huge impact on the daily operations of the three telcos. For one, telcos have pointed out to the IDA during the two-year feedback process that they only terminate services as a last resort after they have exhausted all other measures to recover their monies. We think that the outlawing of the automatic “opt in” for services after the free trial has ended may result in some operational changes for the telcos; but we believe that offering a free trial is still one of the best ways for telcos to showcase their value-added services and gain new subscribers.
Maintain NEUTRAL. Separately, we note that SingTel has upped its game with its plan to start video game rental service using the new NBN network; as we articulated before, we think that telcos need value-added services to stand out from the crowd. But as it is still early days for the NBN market, given the still-low adoption rate, we do not believe that there will be a significant catalyst for SingTel and the other telcos in the near term. Maintain NEUTRAL.
TELCOs – OCBC
Little impact from Telecom Code Revision
Revisions to Telecom Competition Code. The Infocomm Development Authority of Singapore (IDA) has made several revisions to the Telecom Competition Code (TCC) with effect from 21 Jan 2011. One of the key changes is a clause that prohibits telecom licensees from “cross-terminating” a consumer’s service agreement for a breach of another service agreement from an affiliated operator; this means that the telco cannot exert undue pressure on consumers to make payment of disputed charges by threatening to terminate other services (unless offered under the same service agreement). Another key addition is that telcos will no longer be allowed to charge consumers after a free trial service has ended unless they obtained express agreement from the consumer. Other changes to TCC aim to further promote competition, which include the ability for the IDA to apply a prohibition against abuse of dominant position to any licensees that it finds to have significant market power although the regulator has yet to classify them as Dominant Licensees.
More protection for consumers. Overall, these revisions are more to safeguard the country’s growing pool of mobile and broadband users. As of Oct 2010, IDA data shows that Singapore has around 7.2m mobile subscribers and boosts of a mobile penetration rate of 142.1%; the nation also has around 7.5m broadband users with a penetration rate of 183.5%. However, we believe that these revisions are unlikely to have a huge impact on the daily operations of the three telcos. For one, telcos have pointed out to the IDA during the two-year feedback process that they only terminate services as a last resort after they have exhausted all other measures to recover their monies. We think that the outlawing of the automatic “opt in” for services after the free trial has ended may result in some operational changes for the telcos; but we believe that offering a free trial is still one of the best ways for telcos to showcase their value-added services and gain new subscribers.
Maintain NEUTRAL. Separately, we note that SingTel has upped its game with its plan to start video game rental service using the new NBN network; as we articulated before, we think that telcos need value-added services to stand out from the crowd. But as it is still early days for the NBN market, given the still-low adoption rate, we do not believe that there will be a significant catalyst for SingTel and the other telcos in the near term. Maintain NEUTRAL.