Category: StarHub
StarHub – CIMB
Pay TV in the spotlight
StarHub should not be too affected by the iPhone launch, thanks to more rational subsidie sso far though the degenerating economics of pay TV is a concern. NBN take-up is slow and this should blunt competition in the residential market where StarHub is dominant.
We keep our earnings forecasts but roll over our target price to end-2012, which lifts our DCF-based target price (WACC 8.6%). Maintain OUTPERFORM on catalysts expected from slower competition in NBN, stabilising margins and a stable dividend outlook.
Not too hurt by iPhone 4S
We do not expect too severe an impact from the iPhone 4S launch given fairly rational subsidies thus far. While 4Q margins could be affected, this should only be a blip. Industry rationality is probably inspired by a rather saturated smartphone market where 65-70% of postpaid users now possess smartphones and any ARPU uplift is unlikely to be material.
Content costs show few signs of receding
We remain cautious on the economics of pay TV despite the cross-carriage regime and StarHub’s landmark non-exclusive content deal. This is because content costs show few signs of receding. Production costs continue to rise with operators paying for a wider use of content for different platforms. Most importantly, the entry of mio TV has given content owners better bargaining power.
NBN take-up still painfully slow
The take-up of NBN is unlikely to be material, as NBN remains hampered by operational issues. Squabbles persist over access to premises and who would bear the cost of access. Moreover, the installation capacity of OpenNet is limited. While that would preserve StarHub’s dominance in the residential market, it would also hamper its entry into the commercial arena, currently dominated by SingTel.
TELCOs – CIMB
StarHub connects with Vodafone
Switching partners
A day after M1 disclosed its decision not to renew its 8-year partnership with Vodafone after this year, StarHub announced that it is tying up with Vodafone beginning 1 Jan 12. We are mildly positive as StarHub should benefit from: 1) roaming traffic funnelled by Vodafone to StarHub’s network; 2) preferential rates for StarHub’s users roaming overseas; and 3) more multinational-corporation customers in Singapore for StarHub through Vodafone’s global accounts. While details are scanty, we believe the positives will be partially offset by fees charged by Vodafone for the benefits it brings along, similar to what were imposed on M1. Also, the impact on M1’s earnings from its decision not to renew its partnership could be less than our original estimate of 5-10%, because the loss of revenue may be compensated by the cessation of fees payable to Vodafone. No changes to our earnings estimates or target prices. SingTel remains our top Singapore telco pick, followed by StarHub.
The news
A day after M1 revealed its decision not to renew its 8-year partnership with Vodafone when it ends this year, StarHub announced that it is tying up with Vodafone beginning 1 Jan 12. The partnership will encompass inbound and outbound roaming, as well as providing Vodafone’s enterprise customers with mobile services in Singapore. StarHub said this collaboration would enable it to penetrate the local enterprise mobile market with Vodafone’s enhanced roaming experience.
Comments
Small positive for StarHub. We are mildly positive on this news, based on what we know. StarHub should gain from inbound roamers from Vodafone’s users and Vodafone’s partner networks as well as MNC customers in Singapore that are part of Vodafone’s global accounts. However, the benefits should be partially offset by fees charged by Vodafone for channelling traffic and business to StarHub, akin to those levied on its current partner, M1.
Small negative for M1. We earlier estimated a 5-10% dent on M1’s core net profit from the cessation of its partnership with Vodafone but now gather from M1 that the impact on its earnings could be negligible. We understand that the loss of inbound roaming traffic should be partially compensated by the cessation fees that M1 currently pays to Vodafone.
Valuation and recommendation
No changes to our numbers. We maintain our earnings forecasts and target prices for StarHub and M1 and look forward to more details of the impact on each during the next results season. SingTel (Outperform) is our top telco pick in Singapore, followed by StarHub (Outperform). We maintain our OVERWEIGHT on the sector given the telcos’ resilient earnings and cash flows that support attractive and steady dividends.
TELCOs – OCBC
Decent 2QCY11 scorecard; maintain OVERWEIGHT
Decent 2CY11 showing. All the three telcos – M1, SingTel and StarHub – put in pretty decent showing in their 2QCY results recently, mostly meeting our forecasts, and largely demonstrating the defensive nature of their businesses. Both M1 and StarHub declared an interim and quarterly dividend of S$0.066/share and S$0.05, respectively.
Review of Singapore operations. SingTel continues to dominate the local telecoms market, with a ~46% share in the post-paid mobile market, followed by StarHub with ~28% and M1 ~26%. Collectively, we note that the post-paid subscriber base here grew by around 90k QoQ to 3912k; M1 added 13k, SingTel +57k, and StarHub +20k in the last quarter. And with the bulk of the phones sold continuing to be smartphones, we also see higher contribution from data as a percentage of post-paid ARPU (min of 36% for StarHub to a max of 41% for SingTel), although monthly ARPUs have already stayed largely flat at S$55 for M1, S$87 for SingTel and S$73 for StarHub. The broadband segment was generally quite lackluster for all the three telcos, hampered by the slower than-expected take-up of the new Fiber plans under NBN (National Broadband Network) initiative. The Pay TV segment for both SingTel and StarHub continued to show modest growth as households are increasingly getting used to the idea of having two set-top boxes.
2H11 outlook remains stable. Going forward, all the three telcos expect their Singapore operations to remain stable or show modest growth, buoyed by continued customer additions and increasing mobile data usage; note that StarHub though has nudged its revenue growth to low single-digit from single digit previously. We expect the three telcos’ EBITDA margins to remain around current levels – 42% for M1, 42% for SingTel and 30% for StarHub. Both M1 and SingTel have also kept their earlier capex guidances unchanged; but StarHub has pared its capex from 13% of revenue to 12%. And thanks 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 55-70% of underlying earnings; StarHub to pay S$0.20/share, or S$0.05/share per quarter.
Overweight on telcos. In light of the increased volatility in the market due to the unresolved uncertainties in Europe, the still floundering economic recovery in the US and potentially slowing economic growth in China, we continue to like the telcos’ defensive earnings and relatively attractive dividend yields. Maintain OVERWEIGHT. While we have BUY ratings on all three telcos, our preference is for M1 as we believe it has potentially the most to gain from the NBN in the coming two years.
TELCOs – DBSV
Sector offers >6% yield, 2Q11 Review
• M1’s higher gearing and weak free cash flow may limit earnings payout to 80%, below last year’s 100%.
• SingTel continues to gain mobile revenue share while StarHub is gaining non-mobile subscribers despite absence of English Premier League rights.
• StarHub is our top pick, trading at 7.4% yield (fixed 20 Scts DPS) versus 6% for M1 & SingTel.
A quick recap of 2Q2011 results. M1 & StarHub reported inline earnings while SingTel’s earnings were 5% below our expectations. SingTel disappointed on lower than expected earnings contribution from Bharti and Optus. Bharti was hit by 3G rollout costs and higher tax rate in India. Optus, on the other hand, witnessed higher mobile competition as smaller player VHA joined market share battle with incumbent Telstra.
StarHub (Buy, TP: S$3.05) is our top pick. StarHub’s free cash flow is likely to be ~120% of FY11F earnings, as the company pays minimal cash tax due to its deferred tax assets. StarHub has a fixed dividend policy of 5 Scts per quarter for FY11F. We believe this will be maintained in the coming years.
StarHub impressed in the non-mobile segment. Despite loss of EPL and ESPN rights, StarHub continued to gain pay TV subscribers with sequentially stable ARPU. Moderate subscriber growth in the broadband segment and stable ARPU also demonstrated solid execution.
M1 (Hold, TP: S$2.60) may not gear up significantly above its peers. At the end of 2Q11, M1 had net debt to annualized EBITDA of 1.1x versus 0.7x for StarHub and SingTel each as shown in the chart on the side. M1’s gearing spiked from borrowing S$81m to partly pay for FY10 dividends, as its free cash flow was very weak. Even FY11F free cash flow may be ~70% of FY11F earnings due to fair value accounting for handsets. In our view, investor should expect 80% earnings payout ratio.
SingTel (Hold, TP: S$3.20) continued to gain mobile revenue share in Singapore. This was driven by more attractive lineup of handsets and devices offered slightly ahead of peers, focus on pushing data SIM cards by bundling them with fixed broadband service and attractive discounts to subscribers on re-contracting. Peers do not emulate these tactics lest market should become more competitive.
StarHub – BT
StarHub Q2 net jumps 34.3% to $78m
STARHUB’S second-quarter net profit jumped 34.3 per cent to $78 million, from $58.1 million last year, as operating expenses fell in the absence of premium pay-television content such as the World Cup and Barclays Premier League (BPL).
Earnings per share for the three months ended June 30 rose to 4.54 cents, from 3.39 cents in 2010. Q2 revenue stayed flat at $568.6 million.
Last year, StarHub was heavily weighed down by the cost of bringing the Fifa World Cup to local soccer fans. Speculation was rife then that local operators had paid nearly $20 million to finally put an end to the protracted negotiations over the content deal.
With the weight now lifted, the firm’s operating expenses eased 3.1 per cent to $477.2 million in Q2.
StarHub saw a slight topline improvement in three of its four key business segments in the April-June period.
Mobile sales, which accounts for nearly 60 per cent of its service revenue, rose 2.9 per cent year-on- year to $302.5 million.
This was largely due to a 4.4 per cent increase in post-paid subscriber revenue to $239.2 million in the second quarter. Sales from the pre-paid segment dipped 2.6 per cent to $63.3 million in the period.
This company attributed the pre-paid decline to the expiry of certain promotional cards and a database clean-up to comply with regulatory requirements.
StarHub’s total mobile subscriber base grew by 8,000 to 2.15 million at the end of Q2. Revenue from the broadband and fixed network services segments rose 3 per cent and 2.2 per cent to $61 million and $83.4 million respectively during the period.
The exception to the rule was StarHub’s pay-TV unit, which saw its sales slide 15.7 per cent to $92.3 million after it slashed its sports package pricing to reflect the loss of the BPL broadcast rights to rival Singapore Telecommunications. The absence of one-off takings from the World Cup also contributed to the decline, the firm said.
Despite the BPL loss, the firm still managed to grow its pay-TV base by 3,000 year-on-year to 544,000.
‘Although there’s competition, customers are still keeping our (set-top) box. They’re maintaining two (pay-TV set-top) boxes,’ StarHub’s chief operating officer Tan Tong Hai said in a conference call yesterday.
In June, the firm announced plans to raise its monthly pay-TV pricing by $2 from this month. However, the move is not expected to lead to a significant customer loss, StarHub CEO Neil Montefiore added.
For the first six months of this year, StarHub’s net profit soared 46 per cent to $147.1 million, while revenue stayed flat at $1.13 billion.
Looking ahead, the operator now expects its full-year operating revenue to grow in the low single- digit range, a downward revision from the single-digit forecast it had earlier issued as a result of a flat top line in H1.
In addition, the boon it was initially expecting from the ongoing Next-Gen NBN (National Broadband Network) rollout, particularly from the corporate market, may not come through this year, Mr Montefiore said.
StarHub shares closed closed 8 cents lower yesterday at $2.83 before its Q2 earnings were released.