Category: SingTel
SingTel – DBS
Would market like the show of support from SingTel?
• SingTel would raise its interest in Bharti AirTel from 30.43% to 31.95%, by paying INR 18-30 bn to Bharti’s parent company.
• This translates to INR 311-519 per Bharti share in our view, compared to the current price of INR 293, implying 7.6x-12.4x FY10 EV/EBITDA
• We expect SingTel to report 2Q10F underlying earnings of S$937m (+17% yoy, -1% qoq) broadly inline with consensus on 11 Nov.
• We would be buyers below S$2.85. Maintain HOLD with revised STP based target price of S$3.15 as we lower our fair value of Bharti.
Implications of Bharti deal. SingTel would pay between INR 18 bn-30 bn for an additional 1.52% stake in Bharti. Given, 3.8 bn Bharti shares, it translates to INR 311-519 per Bharti share. This implies FY10F EV/EBITDA of 7.6x-12.4x and PER of 13.5x-22.4x on our EBITDA and profit of INR 162 bn and INR 88 bn respectively. Given prospects of Bharti’s earnings decline next year, we think, market may not
appreciate the price being paid by SingTel.
Bharti’s results were slightly below consensus, but outlook could be worse than consensus. Bharti’s 2QFY10F net profit of INR 23.2 bn (-8% qoq, +13% yoy) was inline with ours and c.5% below consensus. ARPU decline of 9% qoq was worse than street expectations of 6-7%. We expect significant decline in tariffs as new players (Etilsalat, Telenor, Sistema) deploy lower pricing while smaller players (Aircel, Tata-Docomo, Idea) adopt per second billing to attract subscribers. We are 7%/15% below FY10F/11F consensus earnings for Bharti. We lower our fair value of Bharti to INR306 at 13.5x FY10F PER (prev 345), given our regional PER average of 14.4x/13.3x for 2009/10 respectively
Telkomsel results and outlook slightly better than consensus. Based on PT Telkom’s 3Q09 results, we estimate that Telkomsel had a net profit of IDR 3.6 tr (flat qoq, +34% yoy), attributable to increased market share and forex gains. We expect 20% y-o-y earnings growth in 2009, and our FY09/10 forecasts are 3%/3% higher than consensus. Another positive for SingTel is that IDR and AUD have strengthened against SGD by 2% and 9.8% qoq.
SingTel – BT
SingTel ups stake in Bharti Airtel
SINGAPORE Telecommunications is shoring up its stake in Bharti Airtel, India’s biggest wireless operator, to 31.95 per cent from 30.43 per cent.
In a regulatory filing yesterday, it said that wholly- owned subsidiary Pastel has agreed to buy 730,000 shares in Bharti Telecom from the Bharti Group for between 18 billion rupees (S$536.2 million) and 30.1 billion rupees in cash. Bharti Telecom holds about 45.3 per cent of the share capital of Bharti Airtel.
With this share acquisition, SingTel’s effective interest in Bharti Telecom will rise from 32.81 per cent to 36.16 per cent, and its effective interest in Bharti Airtel from 30.43 per cent to 31.95 per cent. The share transaction, subject to applicable approvals or consents being obtained, is expected to be completed on Nov 12.
TELCOs – DBS
Structural rise in competition?
• Our checks indicate rising competitive intensity in the sector, and we see this as a trend rather than exception next year.
• We lower M1’s FY10F earnings by 6%, now 2% below consensus. Our StarHub’s FY10F earnings are 5% below consensus. Given that M1 offers 7.3% yield with stable earnings prospects, investors may seek higher yield of atleast 9% from StarHub due to the challenges ahead. Downgrade StarHub to FV and M1 to HOLD
• For SingTel, its Indian associate Bharti retaliated with lower tariffs in the second week of October. We trimmed SingTel’s FY11F earnings by 3%, now 4% below consensus. Maintain HOLD for SingTel with lower TP of S$3.20.
Intense competition for market share in the post-paid mobile segment. Our shop visits indicate that all the players are offering up to 50% discount on the published mobile data rates, implying that ARPU may not have much upside, while network capex may rise significantly, as data traffic typically consumes manifold network capacity than voice traffic. M1 and StarHub, on top of the usual handset subsidy, are offering discount of S$100 to the customers who switch from other operators. Broadband tariffs are also under pressure, as consumers prefer to stay with low-end plans. This may adversely impact the margins of all the players in the industry, in our view.
Higher competition may be a trend, not an occasional spike. We see competitive intensity going up rather than coming down in 2010. SingTel’s EPL pricing of S$23/month (compared to StarHub’s min S$25) despite higher content cost vindicates our fear of aggressive customer acquisition targets. Recently, M1 secured iPhone deal, raised its FY09F capex by 20%, and is keen to secure broadband subscribers through National Broadband Network (NBN) next year. StarHub faces an uphill task of defending its mobile and broadband market share, in the face of possible pay TV market share decline next year, in our view.
No excitement in the sector and too early for bargain hunting. M1 trades at 7.3% yield with stable earnings prospects. In our view, investors may seek potentially higher yield from StarHub, at least 9% yield, given risk of mid-single digit earnings decline in the next two years before it stabilizes.
SingTel trades at 4.5% yield with mid-single digit growth prospects, over the next two years, which appear to be reasonable in our view.
SingTel – DBS
Bharti retaliates with price cuts
• We lower Bharti’s FY11F earnings by c.7%. Bharti’s consensus FY10F/11F earnings could possibly come down by 10%/19%.
• SingTel’s consensus FY10F earnings look fair but FY11F earnings could be trimmed by 4%.
• SingTel’s TP lowered to s$3.20. Maintain HOLD
Rcom initiated tariff cuts in the first week of October. Rcom cut its tariffs up to 50% under its “Simply Reliance Plan” on long distance and roaming calls. The lower tariffs would particularly hit hard the players – who do not own long distance lines and pan India presence.
Bharti and other players retaliate in the second week of October. We understand that major players like Bharti, Vodafone and Idea have already launched similar plans as Rcom, across various circles without much publicity and fanfare though. Given swift reaction across the board, we see a possibility of intensified battle for market share. We lowered Bharti’s FY11F earnings by 7% as FY11F earnings may see single-digit decline due to c.5 ppt decline in EBITDA margins. Bharti’s FY10F/11F consensus earnings could come down by 10%/19% in our view.
SingTel’s consensus FY10F numbers look all right but consensus FY11F numbers could be revised down. SingTel’s FY10F earnings are unlikely to disappoint due to (i) stronger Aussie dollar and Indonesian Rupiah (ii) strong performance of Telkomsel in Indonesia. However, consensus FY11F numbers may come down by c.4% as street realizes the impact of price wars on Bharti’s FY11F earnings.
SingTel’s FY11F earnings lowered by 3%. We have assumed S$40m loss (about 1% of group earnings) due to high cost of English Premier League (EPL) rights in FY11F. Our SOTP target price is lowered to S$3.20 as we lowered our fair value of Bharti by 8% to Rs 345 based on 15x FY10F earnings.
SingTel – OCBC
Game Changer in Pay TV Arena
Game changer in pay-TV segment. To the surprise of many, SingTel managed to clinch the 2010-2012 broadcast rights for the English Premier League from the incumbent StarHub [under review]; this after just one round of bidding, which suggests that SingTel may have paid handsomely for these rights. We had previously expected StarHub to retain these rights and SingTel to only bid for it more aggressively come 2012 when the NBN fully comes on stream. In addition, SingTel has scored another coup over StarHub by securing the exclusive broadcast rights to a suite of sports networks and services from ESPN STAR Sports (ESS) from mid-2010 – this will add more sports content to SingTel’s fledging mioTV line up.
Lowers EPL viewing prices. And SingTel has also announced the EPL sports package rates – it intends to charge S$23 (before GST) per month and pay another S$2 more, subscribers will be able to get additional ESS channels for events such as Formula 1, Australian Open, Wimbledon and US Open Golf Championship. Consumers also do not need to fork out extra for a basic pay-TV package or for set-top box rental, as it is the case for current sports subscribers under StarHub’s deal. However, SingTel has the option to revise its sports pricing for the subsequent seasons; but we believe it remains unlikely that SingTel can recoup the EPL cost via pay- TV subscriptions alone.
Loses iPhone monopoly status. Meanwhile in the mobile segment, competitor MobileOne (M1) has managed to chip away at SingTel’s stranglehold on the Apple iPhone; M1 will also sell the popular smartphone some time later this year but it has yet to announce the pricing details. Overall, we do not expect the move to have a significant impact on SingTel’s bottom line nor meaningfully erode its market share (46.0% as of end Jun 09).
Maintain BUY with S$3.51 fair value. Overall, we believe that the developments in the pay-TV space are positive for SingTel – especially as it works towards “stickiness” ahead of the NBN launch. This is also in line with SingTel’s vision to transform itself from a traditional telco into a leading multi-media solutions provider. With its 2QFY10 results just around the corner, we hold off revising our estimates. However, we continue to favour SingTel’s defensive earnings and potential to expand regionally. Maintain BUY with S$3.51 fair value.