Category: StarHub
TELCOs – OCBC
1QCY12 REVIEW – OVERWEIGHT
•Stable 2012 outlook,
•But margins pressure exists
•Defensive earnings, attractive yields
1QCY12 results were in line
All three telcos recently reported 1QCY12 results which were in line with our forecasts. M1 and SingTel earnings were either spot on or within 2% of our estimates. Although StarHub’s earnings were 13.2% above our forecast, we note that the boost came from higher NBN roll-out adoption grants and higher amortised income; but EBITDA margin of 32.2% was in line with our forecast.
Review of Singapore mobile operations
No change in status quo in the post-paid mobile market – SingTel dominated with a ~47% share, followed by StarHub ~28% and M1 ~26%. Overall, the post-paid subscriber base grew by 38k QoQ to 4067k, with the bulk coming from SingTel (+30k). However, the 0.9% growth was the slowest since Mar 09; and could continue to slow as users shift towards multi-SIM plans for their mobile devices from dongles. Data as a percentage of ARPU is hovering around 37-42%, up from around 35-40% in 1QCY11; this as non-voice communication continues to gain popularity among smartphone users.
Stable 2012 outlook
Going forward, all the three telcos expect their Singapore operations to remain stable or show modest growth, buoyed by the increasing mobile data usage and also the NBN roll-out which is nearing completion. However, EBITDA margin outlook continues to remain fairly muted; and any boost from LTE is not likely to materialize substantially in 2012. Nevertheless, thanks to their strong cashflow generative businesses, the telcos have kept their dividend payout guidance, thus keeping their yields attractive.
Maintain OVERWEIGHT
With the exception of StarHub (+11% YTD), the other two stocks have underperformed (M1 -1.6%, SingTel -0.6%) versus the STI’s 5.2% gain. But with markets likely to remain volatile, we believe that the telcos’ defensive earnings and attractive yields offer a safe harbour for the risk-adverse investors. Maintain OVERWEIGHT. Our pick in the sector is M1.
TELCOs – CIMB
Review of 1Q12
1Q12 telco results reflected the usual seasonal weakness. Key features were: 1)subdued service revenue;2) muted sector margins;and 3)a rebound in ARPUs forfixed broadband.SingTel continued to gain market share in broadband and pay TV, at StarHub’s expense.
All three telcos’ results met our forecasts. Maintain Neutral on the sector as we see no major catalysts. StarHub (Outperform) is our top pick as its net debt/EBITDA is at a multi-year low, ripe for the payment of higher dividends.
SingTel continues to gain share
While its share of mobile revenue peaked in 4Q12, SingTel gained share in fixed broadband and pay TV. This reflects its strategy of garnering more customers with the view of selling them more services in future.
Gearing fell
Gearing improved for all three, with StarHub’s falling to 0.49x, the lowest since 2Q06. Although StarHub has acknowledged that its gearing is very low, it plans to maintain its dividend payout of 20cts in 2012 and does not intend to go for capital management. We believe StarHub is over-conservative and should loosen up its dividend purse strings
Service revenue dipped on seasonality
Overall performances were subdued because of seasonality. Industry revenue dipped 1.3% qoq (but rose 3.8% yoy), due to seasonality and lower equipment sales at StarHub and M1. SingTel’s and StarHub’s service revenue weakened qoq while M1’s grew slightly, thanks to subscriber growth.
Stable and muted guidance
SingTel expects revenue to grow by low single digits with margins to ease. Its capex guidance does not reflect the cost of 4G spectrum in Australia which will be auctioned at end-2012.
StarHub has kept to its 2012 guidance of low-single-digit revenue growth and flat EBITDA margins. To our disappointment, it has maintained its DPS, which we think should be raised.
M1 sounded more positive, expecting its momentum in 1Q to continue through the year, mainly led by mobile data and fixed services.
TELCOs – Phillip
Results Season Takeaways
Sector Overview
The Telecommunications Sector under our coverage consists of SingTel, Starhub & M1. Starhub (STH) and M1 are pure plays to the Singapore market, while SingTel (ST) has exposure to the Asia-Pacific region through its regional mobile associates.
• Positive earnings for SingTel & Starhub
• Starhub is still the highest yielding Telco counter
• SingTel dominates fibre market share
• Neutral on SingTel & Starhub, Reduce on M1
Earnings Surprise?
Starhub’s results beat our expectations for the second consecutive quarter with profit increase of 28% y-y. While revenue increased by merely 6%, better cost control due to lower marketing and promotion expenses improved Starhub’s profitability. M1’s net income declined by 5% y-y as operating expenses outpaced the relatively stagnant top line growth. Adjusting for the effects of a one off gain from an exceptional S$270mn tax credit received, SingTel’s results were in line.
Operational Trends
Starhub & M1 reported stagnant Postpaid Mobile subscriber base in the quarter. SingTel added 30k subscribers, but reported a dip in Postpaid ARPU in the quarter. For the PayTV market, SingTel added 15k subscribers and increased its market share to c.40%. By our estimate, SingTel dominated the fibre broadband space with a market share of 60%, with M1 ranking second with a 23% share. While Starhub does not disclose its fibre base, the company probably has a lower fibre subscriber count as it could still offer high speed MaxOnline plans on its cable network.
Recommendation
Fundamentally, we rate SingTel & Starhub as Neutral and have a Reduce rating on M1. We continue to prefer SingTel for its growth potential outside of Singapore and cheaper valuation over its local peers.
StarHub – DBSV
Great quarter but costs may rise in coming quarters
• Net profits of S$88m were 10% ahead of expectations; due to lower handset subsidy and traffic costs.
• Management has ruled out capital management in FY12F but has maintained guidance of 5 Scts DPS each quarter.
• Our DCF-based TP raised to S$3.10 as we raise FY12F earnings by 5% and roll forward our valuation base. Hold for 6% yield, however stock is not cheap at 17x FY12 PE versus historical average of 14x.
Highlights
Prudent cost management lifted earnings. Its 1Q12 net profits of S$88m (+28% y-o-y, -5% q-o-q) beat market expectations of S$80m. This was due to lower handset subsidy and traffic costs. The handset subsidy cost for each smartphone
was lower due to a higher adoption of Android phones which comprise 50% of new smartphone sales versus 25% a year earlier. Traffic costs also declined as StarHub, as a Vodafone partner, had managed to negotiate lower interconnect rates for some destinations.
Management sees cost pressures in upcoming quarters. Management has maintained its FY12F service EBITDA margins guidance of 30% despite having achieved 32% margins in 1Q12. The recent launch of the Galaxy S3 phone could raise the subsidy bill for telcos. The upcoming iPhone 5 launch is another cost factor (launch rumored in Oct 2012) to consider. StarHub will also incur the cost of exclusive UEFA Cup rights in 2Q12. It will be paying an undisclosed cross-carriage fee to SingTel for carrying Euro Cup matches on SingTel’s pay TV platform.
Our View
Raise FY12F earnings by 5% on higher margins. We project service EBITDA margins of 30.6% in FY12 compared to 29.7% earlier. We do not expect capital management in the near term, as the company may want to preserve cash for the spectrum auction for 1800 MHz and 2600 MHz bands, possibly in 2013.
Recommendation
Maintain HOLD. Our DCF-based (WACC 7.6%, terminal growth 0%) TP has been raised to S$3.10 as we had rolled forward the valuation to FY13F. Currently the stock is trading with a 6.3% yield, with minimal growth prospects. Its quarterly 5 Scts DPS is the key attraction; however that seems to have been priced in, with a FY12F PE of 17x versus the historical average PE of 14x.
StarHub – Phillip
Great start to the year! But still too pricey!
Company Overview
Starhub (STH) is the 2nd largest Telecommunications company in Singapore. The company also has a very strong PayTV franchise with subscriber base of more than 500k that is 60% larger than its closest competitor.
• Strong start with 28% increase in profits
• Stagnant subscriber acquisitions a disappointment
• Guidance maintained for DPS of 20.0cents
• Maintain Neutral with revised TP of S$2.94
What is the news?
Starhub posted a very strong set of results in the first quarter of the year with profit increase of 28% on the back of 6% growth in sales. The strong set of sales was led by higher Postpaid mobile (+6% y-y) and PayTV (+4% y-y) revenue. Starhub exhibited strong cost control for the quarter with lower marketing and promotion expenses as the key source of variance from our expectations. Starhub maintained its guidance of low single digit revenue growth and DPS of 20.0cents for the year.
How do we view this?
The results were above our expectations. However, subscriber acquisitions were slightly disappointing with relatively stagnant Mobile, PayTV & Broadband subscriber base. We think that the key source of earnings uncertainty for this year’s results would be in 2QFY12, where Starhub would likely book in significantly higher content cost for Euro 2012. Despite its low gearing with Net Debt to EBITDA of c.0.5X, management highlighted that there would be no capital management this year and maintained their guidance of 20.0cents DPS in the year.
Investment Actions?
We maintain our view that Starhub’s stock is fairly pricey at current levels and see little upside from hereon. Maintain Neutral.