Category: SingTel
TELCOs – OCBC
1Q09 Scorecard
Resilient 1Q09 results as expected. All the three telcos – MobileOne (M1), SingTel and StarHub – reported a pretty resilient set of results recently. M1’s 1Q09 earnings were slightly ahead of our forecast but that was mainly due to an one-off tax credit; EBITDA margin also improved due to slight easing in competition. SingTel’s 4Q09 earnings were much better than expected, aided by a strong domestic market performance. StarHub’s 1Q09 earnings were within expectations, but the boost came from lower taxes; its mobile business recorded a mild decline.
Review of operations. On the mobile front, we note that the recession has impacted consumer spending in the March quarter; this has led to a decline in mobile post-paid ARPUs. And in line with the weaker demand, most of the telcos have further scaled back their acquisition costs; the exception being SingTel, which clocked in at S$290/ customer, up QoQ but down YoY. And in terms of market dynamics, we see that M1 has lost post-paid market share, which does not come as a surprise, given its lack of bundling abilities. On the broadband front, the net additions for both SingTel and StarHub have slowed, partly due to the economic slowdown and also the saturation in the market, which has now hit 109.5% (up from 99.9% in 4Q08). And while StarHub managed to add more customers, we note that its ARPU has been declining, whereas SingTel’s ARPU has managed to remain quite stable.
Stable outlook for 2009. Going forward, all the three telcos expect their Singapore operations to remain stable or show slight growth, with EBITDA margins remaining relatively steady; this as they strive to reduce costs to keep pace with the expected softening in operating revenue. But due to their strong cashflow-generative businesses, the telcos have largely kept their dividend payout guidance; M1 to pay at least 80% of underlying net profit; SingTel to pay 45-60% of underlying earnings; StarHub to pay S$0.18/share, or S$0.045/share per quarter.
Maintain Overweight. Although there has been a steady switch into highbeta stocks on hopes of a rapid recovery in both the economy and corporate earnings, we are not entirely convinced. And until we see more concrete signs of a rapid recovery, we would still advocate holding on to these defensive counters for their attractive dividend yields and as a means of diversification. Maintain Overweight.
TELCOs – BT
Telcos’ quarterly results show resilience
But signs of slowdown in mobile market point to need for diversification to sustain growth.
SINGAPORE’S telecommunications trinity walked the talk in the curtain raiser to 2009 with an encouraging set of quarterly results. But despite proving their defensive mettle, signs of a slowdown in the saturated mobile market could point to diversification as the only route to maintain local growth in the long run.
To recap, MobileOne flagged off the telco earnings season on a high note by beating most analyst estimates with its 10.3 per cent jump in Q1 net income to $41.9 million. This improvement was largely the result of lower taxes and tighter cost control.
StarHub kept the momentum going with a 3 per cent increase in first-quarter profits to $82.5 million, helped by lower taxes and higher contributions from its pay-TV and fixed network businesses.
SingTel would appear to have upset the balance this week by turning in quarterly earnings of $903 million, a 17 per cent drop from last year.
However, this decline was largely pegged to negative currency movements and a poor showing from its key regional associates Telkomsel and AIS. If Singapore is used as the yardstick for comparison with its two rivals, SingTel’s local Ebitda (earnings before interest, taxes, depreciation and amortisation) actually rose 20 per cent to $578 million.
Market analysts reciprocated the trio’s performance with unanimous ‘buy’ calls as local telcos continue to live up to their reputation as defensive plays.
‘M1 outperformed the STI by 2 per cent YTD (year to date), but its solid 9 per cent yield is the key attraction,’ said DBS Vickers analyst Sachin Mittal.
StarHub, on the other hand, impressed market watchers with its ability to eke out better margins during crunch times. ‘We have raised our earnings estimates by 4.2 per cent to $310.9 million in FY09 on the back of improving margins,’ said Terence Wong, head of research at DMG & Partners.
Despite SingTel ending its fourth quarter with a lower bottom line, the recent appreciation of regional currencies, coupled with the improved outlook of its key associates, is expected to give the operator a boost this financial year.
‘We have revised our FY10 estimates up slightly (by around 3 per cent to reflect its resilient business) and introduced our FY11 estimates. We have also bumped up our SOTP (sum-of-the-parts) fair value from S$3.09 to S$3.18 to reflect the recovery in equities of its associates,’ OCBC Research analyst Carey Wong said in his client note. He expects SingTel to turn in a net profit of $3.42 billion this year on the back on a $14.32 billion turnover.
While the three operators have shown that they are still in the pink of financial health for now, the Q1 numbers did unravel some niggling signs of concern within their cellular core.
Singapore’s sky-high mobile penetration of 132 per cent leaves little room for new post-paid subscriber growth. In addition, operators are also feeling the pinch as consumers rein in their talk time during the downturn.
In particular, M1 lost 11,000 mobile subscribers during the quarter and the exodus pulled its market share down to 25.4 per cent in Q1. StarHub’s mobile revenue dipped 3.1 per cent in to $264.7 million as customers cut back on international calls and voice usage.
Even SingTel, which reported a 9.1 per cent increase in mobile sales to $370 million with the addition of more customers, admitted its subscribers are making less international calls and keeping within the talk time allocated to their respective subscription plans.
This has prompted SingTel to look into ‘adjacent markets’ such as pay-TV, Internet and mobile advertising, said its Singapore CEO Allen Lew. The launch of its new cross-platform advertising service, and its digital media subsidiary earlier this month are the flag bearers for SingTel’s diversification intent. In addition, it also has its overseas investments to help offset any weakness at home.
StarHub, on the other hand, may have to look more to its pay-TV business and come up with new subscription packages to appeal to the remaining half of the unconverted local households. This will buy time as it waits for its opportunity to extend its corporate connectivity reach when Singapore’s new fibre-optic network is minted in 2013.
Without a viable second business in the near term, market watchers say M1 will have to innovate on mobile pricing and subscription bundles to try and draw the crowds but its margins could be thinned as a result.
‘From the tone of the management, we gather that should its (M1’s) market share continue to fall, it will retaliate aggressively,’ said Mr Wong from DMG & Partners.
SingTel – DBS
Focus on the “Home Ground”
• Singapore and Optus EBITDA improved sequentially in 4Q09 despite weak macro
environment.
• We expect Singapore to continue to grow its data and mobile business, while Optus might benefit from an improved competitive environment in Australia.
• Our revised FY10F-FY11F earnings are 4%-6% above consensus. Maintain BUY with target price of S$3.05.
Managed service, IT projects and mobile business to drive Singapore growth. SingTel launched various packages focusing on cost savings for SMEs in the last quarter, which should help to drive growth from the managed service business. In the conference call, management also hinted that it expects large IT government projects in the current year. In the mobile segment, SingTel has significantly increased its market share in the last couple of quarters. Going forwards, even if ARPU declines from lower usage, SingTel’s bottom-line stands to benefit from recently acquired subscribers, whose acquisition costs have been expensed off in the recent quarters already.
Margins may rebound back in Australia. Optus witnessed healthy margins across its various segments in 4Q09. We believe that subsequent to the Hutch-Vodafone merger, Optus margins can start to trend north as Hutch-Vodafone focuses on enhancing its low margins. Management’s guidance of low single digit growth in revenue and EBITDA, despite official forecast of 1% yoy contraction in Aussie economy in 2009, also points in the same direction. We expect 25% EBITDA margins in FY10F versus 24.8% margins in FY09A.
Further rebound in regional currencies is the key catalyst. In the past one-month Indonesian rupiah and Aussie dollar have strengthened 7-10% versus SGD. Indian rupee is still weak but any rebound could be earnings accretive for SingTel. We maintain BUY with SOTP based target price of S$3.05.
SingTel – BT
SingTel’s Q4 net profit slides 17% to $903m
The company is proposing a final dividend of 6.9 cents a share
SINGAPORE Telecom’s fourth quarter profit may have suffered its steepest drop in recent years after a poor showing by regional associates, but the operator is in no hurry to do more shopping to help turn the tide.
‘Our growth strategy is not predicated on doing more M&As (mergers and acquisitions),’ said SingTel CEO Chua Sock Khoong.
Her comments follow recent overseas reports linking SingTel to a possible tie-up with cash-strapped Warid Telecom in Bangladesh. SingTel declined to comment on the reports.
It already owns a stake in another Bangladeshi operator called PBTL (Pacific Bangladesh Telecom Ltd), but the latter operates a CDMA (code division multiple access) cellular network instead of the more mainstream GSM networks used by most mobile subscribers there. SingTel also owns 30 per cent of Warid Telecom in Pakistan.
Aside from injecting more cash into PBTL and Warid, SingTel drew a blank on the foreign acquisitions front in the past 12 months. But this could change in the coming year should the global credit crunch throw up more candidates in dire need of an external cash injection.
‘SingTel continues to look for new investments in Asia and emerging adjacent markets and will be financially-disciplined in its evaluation of these opportunities,’ Ms Chua said.
The company, which derives 70 per cent of its Ebitda (earnings before interest, taxes, depreciation and amortisation) from overseas, yesterday reported a 17.3 per cent drop in Q4 net income to $903 million, from $1.09 billion a year earlier.
Q4 basic earnings per share tumbled 17.3 per cent to 5.68 cents, while operating revenue slid 5.1 per cent to $3.57 billion.
According to Ms Chua, the bottomline decline was caused by adverse currency movements during the quarter, coupled with lower contributions from SingTel’s two biggest regional associates – Thailand’s AIS and Indonesia’s Telkomsel.
Its wholly owned Australian unit Optus, which accounts for 29 per cent of group Ebitda, saw net profit rise 17 per cent for the three months ended March 31 to A$193 million (S$215 million). But the weaker Australian dollar dragged earnings down 7.8 per cent in Sing-dollar terms.
The strength of the Sing dollar also reduced pre-tax profit from SingTel’s six regional associates 22.4 per cent to $489 million in Q4.
AIS and Telkomsel led the plunge, their earnings diving 34 per cent and 41 per cent to $50 million and $163 million respectively.
Pre-tax profit from Globe in the Philippines fell 4 per cent to $78 million, while PBTL and Warid suffered losses of $3 million and $25 million respectively.
The sole bright spot among SingTel’s affiliated companies in Q4 was India’s Bharti, which saw pre-tax profit rise 1.4 per cent to $225 million in Q4.
‘We take a longer-term view of our investments. Not all of them are profitable from Day One,’ Lim Chuan Poh, CEO of SingTel International, told reporters at the firm’s results briefing.
SingTel’s Singapore home ground, however, proved resilient against the economic storm, with local Ebitda rising 20 per cent to $578 million in Q4.
Local earnings were lifted by higher revenue from the three key business units – data and Internet; mobile; and IT & engineering.
For its full 2009 financial year, SingTel’s net income fell 12.9 per cent to $3.45 billion despite a marginal 0.6 per cent increase in revenue to $14.9 billion.
It ended the year with free cash flow of $3.25 billion, down from $3.58 billion in 2008 due to higher capital outlays.
The company is proposing a final dividend of 6.9 cents a share, taking its full-year payout to 12.5 cents, unchanged from 2008. This is in line with its stated payout ratio of 45-60 per cent of underlying earnings, a range that also applies to SingTel’s current financial year, Ms Chua said.
Looking ahead, she expects earnings from its Singapore operations to remain stable while Optus’ Ebitda is projected to grow at a ‘single-digit level’.
Higher profits are also expected of Bharti and Telkomsel in local currency terms this year.
SingTel shares closed 0.7 per cent higher at $2.74 yesterday.
SingTel – DBS
Spectacular show
At a Glance
• Underlying net profit of S$959m was 13% ahead of ours and consensus expectations.
• Singapore and Australia surprised with significant EBITDA improvement both sequentially and annually.
• We are revising our FY10F by 6% expecting Singapore and Australia to continue to deliver. Upgrade to BUY with revised SOTP target price of S$3.05.
Comment on Results
Underlying net profit of S$949m (-0.9% yoy) was up 15% qoq mainly due to three reasons (i) Singapore EBITDA of S$578m (+3% yoy) improved 3.1% sequentially despite weak economy as corporate data and mobile services showed no weakness while costs were lower (ii) Excluding tax credits, tax rate for Singapore was around 10%, lower than our 17% expectations (iii) Optus EBITDA (+8.5% yoy) improved 14.5% sequentially due to significant improvement in both revenue and margins in the mobile segment.
Management guidance for FY10F
Singapore guidance. Single digit growth in Singapore revenue, 36- 38% EBITDA margins lower than 39% in FY09, implying flat EBIDTA. Capex below S$800m compared to s$736m in FY09, as such management expects slight decline in free cash flow.
Australia guidance. Low single digit growth in operating revenue and EBITDA, with growth in mobile and wireless broadband. Capex of about A$1.1b, mainly in mobile network, compared to A$1.0b in FY09. Free cash flow is expected to be stable.
Associate guidance. Growth in local currency earnings of Bharti and Telkomsel. Management expects lower ordinary dividends from the regional mobile associates as Telkomsel and Globe reported lower profits in 2008.
We have revised up our FY10F and FY11F estimates by 6% each. Upgrade to BUY with revised TP of S$3.05.