Category: SingTel
TELCOs – OCBC
Downgrade to NEUTRAL
- All largely in line
- Outlook still muted
- Downgrade to NEUTRAL
Results were mostly in line
All three telcos reported 1QCY13 results that came in within our expectations. M1’s core earnings met 27% of our full-year forecast; SingTel met 27%; and StarHub met 25%. StarHub declared a quarterly dividend of S$0.05/share as guided, while SingTel declared a final dividend of S$0.10 (bringing its total dividend for FY13 to S$0.168).
Review of Singapore mobile operations
Core post-paid mobile subscribers grew by 1.2% QoQ to 4.3m at end-Mar, led by SingTel (+1.4%), M1 (+1.1%) and StarHub (+0.8%). While monthly ARPUs were fairly stable, the three telcos expect to see some uplifts this year, aided by the new tiered pricing plans with less generous data bundles; they also expect data usage to trend higher as more users migrate to the faster 4G networks.
Outlook still quite muted this year
While the exception of M1, which expects to see a moderate earnings growth this year and pay out at least 80% of earnings as dividends, both SingTel and StarHub are more muted in their outlook. SingTel expects stable group revenue for FY14 while overall EBITDA should show low single-digit growth. It did raise its dividend payout ratio to 60-75% of core earnings. On the other hand, StarHub has pared its revenue guidance down to low single-digit growth from singledigit growth and kept its EBITDA margin at 31%. It also kept its dividend at S$0.20/share, or S$0.05/quarter.
Downgrade to NEUTRAL – yields are not attractive
In the search for yield, telco stocks have done very well, rising some 14-26% YTD. However, we note that the share prices have run up too much, too quickly, and this has driven yields down to below 5%. In addition, a more “risk-on” approach could see investors switching out of defensive plays. As such, we downgrade our rating on the sector to NEUTRAL from Overweight.
SingTel – MayBank Kim Eng
The Heavy Lifting Begins
“Hype” phase over, time to deliver. SingTel is a SELL with a target price of SGD3.38 as the easy “hype” phase is over now that the stock has gained 30% in a year and SingTel has to deliver. Even as it prepares to pour in more billions into loss-making, very long-term investments with no hope for positive short-term returns, capex is expected to rise 25% and free cashflow is expected to drop by a third, it is on the eve of having to spend even more money that is beyond its current guidance – if it wins one of two Myanmar telecom licences (deadline 27 June 2013). M1 is our top pick among Singapore telcos.
Within expectations. FY13 underlying net profit of SGD3,611m was within expectations mainly because of strong contributions from Telkomsel and Globe that offset continued poor results from Bharti Airtel. Singapore operations (rev +3%, ebitda +0.9%) benefited from higher market share in mobile, fixed broadband and Pay TV, but Optus results were below expectations (rev -6.7%, ebitda -1.2%) as the Australian market remained buffeted by competition. A final dividend of 10 cents was announced, up from 9 cents, for a total payout of 74%.
Crunch time in FY14. Results-wise, FY14 is likely to be muted, with stable group revenue (Singapore to do better but Australia muted) and low single digit rise in EBITDA (on cost controls in Australia and Singapore). However, SingTel is in spending mode. It plans to spend more on Digital investments (SGD2b allocated over 3 years) and capex (SGD2.5b in FY13, up from SGD2b in FY13 – mainly on 3G and 4G networks and spectrum). As such, free cashflow will drop 28% to SGD2b in FY14, though still enough to fund a 75% dividend payout.
Myanmar investment will be on top of guidance. SingTel is tipped to be a hot favourite for the two new foreign operator licences in Myanmar. 12 applicants have been pre-qualified, with submission on 3 June and the winners known on 27 June. The capex and investment guidance of SGD2.5b and SGD2b respectively does not include investments needed for Myanmar, which could also run in the billions. Digicel, which is bidding with George Soros’ fund, has suggested that the initial project investment could be USD1.5b to USD2b.
SingTel – OCBC
Upside fairly limited; downgrade to HOLD
- Guides for stable group revenue
- Low single-digit EBITDA growth
- Downgrade to HOLD with S$3.83 FV
FY13 results mostly in line
SingTel saw its 4QFY13 revenue slipping 6% YoY and 3% QoQ to S$4.48b, weighed down by the weaker A$. Full-year revenue fell 3% to S$18.18b, and was 3% shy of our forecast. Reported net profit for 4Q came in at S$868.2m, down 33% YoY but up 5% QoQ; core earnings slipped 2% YoY and rose 15% QoQ to S$1.0b. Core FY13 earnings eased 1.8% to S$3.61b, or about 4% below our forecast. SingTel has declared a final dividend of S$0.10/share, bringing the fullyear payout to S$0.168 (74% of underlying net profit).
Guides for stable group revenue
Going forward, SingTel expects group consolidated revenue to remain stable. For Group Consumer, it expects revenue to show a low single-digit decline, with lower revenue from Australia; but EBITDA to show a low single-digit rise. Group Enterprise revenue is expected to deliver low single-digit growth, with EBITDA to remain stable. For Group Digital Life, revenue could jump by at least 50%, but it will continue to register startup losses. Overall EBITDA for the group should show low single-digit growth, led by productivity and yield management.
Capex spend of S$2.5b; raises payout guidance
SingTel expects to increase capex spending to S$2.5b (from S$2.1b in FY13), mainly for expansion of its LTE coverage and 3G network enhancement. FCF (free cashflow) is likely to come in at around S$2.0b; it also expects ordinary dividends from associates to grow. Finally, it has raised the dividend payout ratio to 60-75% (from 55-70% previously).
Revising FV to S$3.83; downgrade to HOLD
Incorporating the latest guidance, we pare our FY14 forecasts for revenue by 3% and core earnings by 2%. After updating the value of its listed associates, our SOTP fair value rises from S$3.68 to S$3.83. But given the recent sharp run-up, the upside from here looks fairly limited. Hence we downgrade our call from Buy to HOLD.
SingTel – CIMB
Dialling up capex and dividends
We believe that SingTel’s capex will remain elevated after FY3/14 as it is raising its spending on LTE and 3G. It is also allocating S$2bn for investments in digital business in the coming three years. Despite the spending, it nudged up its payout policy from 55-70% to 60-75%.
We upgrade our call on SingTel from Underperform to Neutral with a higher SOP-based target price after removing our discount for Optus on easing competition, among others. We view its higher payout policy positively. We also tweak up our forecasts after imputing the FY13 numbers and FY14 guidance. M1 remains our top Singapore telco pick.
What Happened
The main takeaways from SingTel’s FY13 results and conference call are:
FY14 capex will rise 25% to S$2.5bn due to its investment in LTE and 3G in Singapore and Australia.
EBITDA growth in Singapore and Australia will be muted. Moreover, the surge in capex leads to higher D&A and will be a drag on EBIT.
SingTel is setting aside S$2bn over the next three years to support growth of the digital business though the actual sum is subject to the availability and size of investments. This is a large sum, in our view, and dwarfs the $0.5bn invested so far.
Despite the higher capex, SingTel nudged up its dividend payout policy from 55-70% to 60-75%.
What We Think
Earnings from Singapore and Australia will be weighed down by rising opex and D&A resulting from aggressive capex. This will be offset by robust associate contribution. Capex will remain elevated beyond FY14 as we believe Optus is still in the early stages of its LTE rollout. Also, Optus needs to fork out A$649m for spectrum in FY15.
We view with caution Singtel’s large budget for investments in digital as we think these investments carry higher risks. We would prefer if SingTel returned excess cash to shareholders instead of investing them in adjacent industries.
That said, we view its higher payout policy positively as it reflects a more proactive capital management.
What You Should Do
Switch to M1, our top Singapore telco pick. M1 is benefiting from the rapid take-up of tiered data plans for which it charges an additional S$3/mth.
SingTel – CIMB
Dialling up capex and dividends
We believe that SingTel’s capex will remain elevated after FY3/14 as it is raising its spending on LTE and 3G. It is also allocating S$2bn for investments in digital business in the coming three years. Despite the spending, it nudged up its payout policy from 55-70% to 60-75%.
We upgrade our call on SingTel from Underperform to Neutral with a higher SOP-based target price after removing our discount for Optus on easing competition, among others. We view its higher payout policy positively. We also tweak up our forecasts after imputing the FY13 numbers and FY14 guidance. M1 remains our top Singapore telco pick.
What Happened
The main takeaways from SingTel’s FY13 results and conference call are:
FY14 capex will rise 25% to S$2.5bn due to its investment in LTE and 3G in Singapore and Australia.
EBITDA growth in Singapore and Australia will be muted. Moreover, the surge in capex leads to higher D&A and will be a drag on EBIT.
SingTel is setting aside S$2bn over the next three years to support growth of the digital business though the actual sum is subject to the availability and size of investments. This is a large sum, in our view, and dwarfs the $0.5bn invested so far.
Despite the higher capex, SingTel nudged up its dividend payout policy from 55-70% to 60-75%.
What We Think
Earnings from Singapore and Australia will be weighed down by rising opex and D&A resulting from aggressive capex. This will be offset by robust associate contribution. Capex will remain elevated beyond FY14 as we believe Optus is still in the early stages of its LTE rollout. Also, Optus needs to fork out A$649m for spectrum in FY15.
We view with caution Singtel’s large budget for investments in digital as we think these investments carry higher risks. We would prefer if SingTel returned excess cash to shareholders instead of investing them in adjacent industries.
That said, we view its higher payout policy positively as it reflects a more proactive capital management.
What You Should Do
Switch to M1, our top Singapore telco pick. M1 is benefiting from the rapid take-up of tiered data plans for which it charges an additional S$3/mth.