Category: StarHub
TELCOs – BT
Clearer skies for mobile sector
THE smartphone bug that took a bite at all three telcos’ earnings in the past year is finally expected to loosen its grip in the coming months. While this will bring some much-needed reprieve for their core mobile businesses, the onset of higher pay-TV content costs and possible broadband price erosion may mean the bottom lines from their local operations could be little changed at the end of 2011.
In the past 12 months, the once-scarce iPhone became an accessory of the masses as Apple ditched its one-operator strategy in favour of broader distribution.
This triggered a mad smartphone rush among local consumers as both Apple and non-Apple touch-screen handsets flew off the shelves, ending up in the hands of teenagers and grandparents alike.
However, the aggressive subsidies that came with these phones meant all three operators had to bear with some short-term pain initially before they could reap any long-term gain.
Handset costs rose to 33 per cent of sales at M1, while SingTel and SingTel also experienced steep hikes over the course of 2010.
The good news for the trio is that the end appears to be in sight and margins should start to improve from now on.
In fact, StarHub is already showing early signs of turning the corner in the fourth quarter of 2010. Profit from its operations grew 12 per cent in Q4 to $99.7 million from a year ago, while cost of sales fell 9 per cent to $210 million.
Smartphone penetration among postpaid subscribers now stands at around 60 per cent across SingTel, StarHub and M1. Most handset users made the transition in 2010 and are now locked into two-year contracts.
Moreover, smartphone adoption is not likely to shoot past the 80 per cent mark as there is still a large pool of users, such as the elderly, who are resistant to the switch.
As the handset fever subsides, and the bane of higher subsidies eases, telcos can finally sit back and start to reap the fruits of their labour. Telcos have previously stated that they would require three to six months to recoup the subsidy for a smartphone user and this should happen in 2011.
In addition, the coming tablet glut, including the much-hyped iPad 2, could give their mobile subscriptions a further boost.
This is because 3G-enabled touch-screen slates can boost cellular revenue without the bane of incurring an upfront loss. All three telcos have already introduced iPad-specific data plans and more competitive packages could be launched in response to the tablet onslaught in the coming months.
A few things could, however, tilt the balance. In particular, the launch of another market-moving device such as the iPhone 5 could spark mass upgrades and drag the telcos back to square one.
However, the timeline for its launch remains unclear. Even if the fifth-generation Apple phone is released within the next few months, it should only reach local shores in the third or fourth quarter, and consequently, the pinch should only be felt in 2012.
While mobile margins are set to improve, the impact could be negated by higher content acquisition costs. This is particularly true for SingTel and M1.
Having established a beachhead among local sports fans with the Barclays Premier League, SingTel has laid down the gauntlet by declaring its intention to conquer more subscriber segments. This would involve the acquisition of new programme genres.
The same is true for M1 if it wants to improve on its nascent ‘1box’ pay-television offering. Despite the introduction of the government’s cross-carriage pay-TV policy this year, it is unlikely that content owners would drastically reduce the premiums they place on their offerings.
On the broadband front, the much-prophesied competition that will arise from the dawn of fibre-optics in Singapore will not materialise this year.
Several hiccups now stand in the way of broader adoption. On the one hand, a large number of condominium residents are still cut off from ultra high-speed broadband due to disagreements over cabling procedures. On the other, operators such as SingTel and StarHub have little incentive to push for fibre-optic adoption for the time being as it could cannibalise their existing broadband revenue streams.
The rivalry may intensify towards the end of this year when the new network nears completion but status quo should be maintained in the interim.
In recessionary times, the stable nature of telecommunications operators is a much sought-after virtue but this becomes less attractive when an economic boom is at hand. This can be seen by recent ‘underweight’ calls that have recently been placed on the telco industry.
However, the sector’s high-dividend yield, coupled with its defensive nature, means it should still be worthwhile consideration in any smart investor’s portfolio.
StarHub – OCBC
Single-digit revenue growth in 2011
Margins slightly softer than expected. StarHub Ltd’s 4Q10 revenue rose 1.6% YoY and 1.2% QoQ to S$559.0m, about 3.1% above our estimate, while net profit came in around S$80.4m, up 8.2% YoY; but it fell 1.9% QoQ and was also 8.8% below our forecast, due to higher staff cost and dearer content cost. As a result, 4Q10 service EBITDA margin came in at 31.5%, down slightly from the 32.3% seen in 3Q10, but still stronger than the 29.2% recorded in 4Q09. And as guided, StarHub maintained its S$0.05/share cash dividend for the quarter. For the full year, revenue grew 4.1% to S$2237.7m, just 0.8% ahead of our estimate, while net profit fell 17.7% to S$263.2m, or around 2.9% shy of our forecast.
Maintaining mobile market share. Mobile revenue grew 7.9% YoY and 1.5% QoQ to S$302.7m, as StarHub added 12k new postpaid (+1.2% QoQ) and 12k prepaid customers (+1.1%) in the quarter; this helping to keep its market share stable at 29.4% (versus 29.5% in 3Q10 and 28.0% in 4Q09). And due to the higher take-up of smartphone plans, postpaid ARPU for the quarter rose further to S$74/month from S$72 in both 3Q10 and 4Q09, despite a continued drop in MOU (minutes of use). While this increased its acquisition cost per user from S$109 in 4Q09 to S$120 in the quarter, it was lower than the previous quarter’s S$130.
Pay TV business stabilizing. While Pay TV revenue fell 10.5% YoY, it was down by a much smaller 0.6% QoQ to S$91.8m, suggesting that the impact from the loss of several key sports content is not as bad as feared. Subscriber base was also stable at 538k versus 537k in 3Q10 and 539k in 4Q09, although monthly ARPU fell 14.3% YoY and 4.0% QoQ due to lower sports package pricing. Broadband revenue, though down 0.2% YoY to S$59.0m, but up 1.2% QoQ, also suggesting that it is starting to see some stability. However, with the slower-than-expected roll-out of NBN, any near-term pickup in ARPU looks unlikely.
Guides for 30% service EBITDA margin. For 2011, StarHub expects to see single-digit revenue growth, with service EBITDA margin coming in around 30% (versus 28% in FY10); capex should also not exceed 13% of operating revenue and maintains S$0.05/share quarterly dividend. In view of the latest guidance, we raise our FY11 revenue forecast by 1.1% but cut our earnings forecast by 9.9%. However, our DCF-based fair value remains unchanged at S$3.02. Maintain BUY.
StarHub – BT
StarHub posts 8.4% rise in Q4 net profit as mobile business revs up
But acquisition expenses of iPhones and other smartphones puts a drag on full-year profit
STARHUB posted an 8.4 per cent year-on-year rise in fourth quarter net profit to $80.4 million as revenue for the three months ended Dec 31, 2010, increased 1.6 per cent to $559 million.
Its main mobile business saw a 7.9 per cent climb in Q4 revenue to $303 million. Also contributing to its better results was an ‘other income’ of $3 million, which came from government grants for the NBN (Nationwide Broadband Network) project.
Earnings per share for the quarter came to 4.69 cents, up from Q4 2009’s 4.33 cents. The group proposed a final dividend of five cents a share, bringing the full-year dividend payout to 20 cents. StarHub CEO Neil Montefiore said he expects the cash dividend payout to be maintained at 5 cents per share per quarter.
Full-year revenue increased 4 per cent to $2.24 billion. Higher cost of sales and expenses, however, pulled 2010 net profit down by 18 per cent to $263 million.
Kwek Buck Chye, StarHub’s chief financial officer, said acquisition expenses of high-end handsets such as the Apple iPhone and other smartphones was a significant cost.
‘2010 bears the brunt of a full year’s investment in iPhones,’ he said.
StarHub began carrying the iPhone in December 2009. The increased use of smartphones and mobile data helped push up ARPU (average revenue per user) and revenues for StarHub’s mobile business, which contributes 53 per cent of its overall revenue.
Mobile revenue over the year grew 8 per cent to $1.18 billion, with post-paid services revenue rising 10 per cent to hit $917 million for the year. Pre-paid services revenue also grew 2 per cent over the year to hit $264 million.
StarHub’s total mobile customer base saw an addition of 227,000 customers over the year, an increase of 12 per cent. Post-paid ARPU rose $2 in the last quarter of 2010 to reach $74.
Mr Montefiore said this rise, together with a drop in revenue from voice services, was due to the trend of using data services more than that of cellular voice. Examples of such data services include people using voice over Internet protocol (VoIP) services, as well as data-based text messaging services and social networks.
StarHub’s pay-TV business, which contributed 18 per cent to its revenue, saw revenue drop by 2.5 per cent over the year to $395 million. For the fourth quarter of 2010, it decreased 11 per cent over 2009’s fourth quarter to $91.8 million.
Tan Tong Hai, StarHub’s chief operating officer, said this was a result of the revision of monthly subscription prices of its sports channel group.
In October 2009, StarHub lost the exclusive broadcast rights to the Barclays Premier League (BPL) in a fierce bidding war with rival, SingTel. Mr Montefiore acknowledged the impact of the BPL loss: ‘There is a gap in our sports (offering) without the BPL but we are announcing new sports content.’
Still, its pay-TV subscriber base held steady at 538,000 households in 2010’s fourth quarter, just 1,000 households lower than 2009’s close.
There were fears of SingTel wresting customers away from StarHub with the BPL win.
On SingTel’s end, the BPL has multiplied its mio TV base by about five times over the past two years. It had a base of 59,000 customers at end 2008, a number which swelled to 245,000 by September 2010.
StarHub’s shares lost one cent to close at $2.61 yesterday.
StarHub – OCBC
Invests in ASE JV
Building the ASE network. StarHub Ltd announced that it has joined several Asian carriers to build and operate the Asia Submarine-Cable Express (ASE) – a 7,200 km undersea cable system linking Singapore directly to Japan, the Philippines and Hong Kong. The ASE will also have connectivity to Malaysia and potentially future connectivity to China, as well as other SE Asian countries. StarHub, NTT Communications, PLDT and Telekom Malaysia will jointly build the system, which is estimated to cost around US$430m (S$552m), and is expected to start operation by Jun 2012. According to StarHub, the launch of ASE will bring about strong connections into the US via the Asia-America Gateway, and also allow network operators to compete on speed and reliability, as the ASE will boost a total bandwidth capacity in excess of 15 terabits per second and is specifically designed to avoid earthquake and typhoon-prone regions.
Internal resources sufficient for now. StarHub did not give further details on how much is its investment in the ASE. Assuming that each partner takes an equal share of the cost, we estimate that StarHub could be investing up to S$138m over the next 18 months to build the infrastructure. We also understand that other telco operators typically buy-in into such ventures closer to the operational date, thus further reducing the investment put in by the original partners. In any case, looking at its cash balance of S$246.8m (as of 30 Sep 2010), net gearing of just under 52%, and free cashflow of S$308m for 9M10, we believe that StarHub should be able to finance its investment using internal resources and more bank loans. We do not expect the new investment to put its current S$0.05/share quarterly dividend at risk.
Data usage on the rise. We are positive on the latest development for a couple of reasons. Firstly from a demand point of view, we agree that the phenomenal rise of data usage is expected to continue, fuelled by the proliferation of smartphones, tablets and other Internet-ready devices that are constantly fetching data to keep users connected. Hence having access to such infrastructure is crucial; and by being an “owner”, StarHub will also be able to benefit from a cost point of view. Note that ASE is the telco’s second investment in submarine cables.
Maintain BUY with S$3.02 fair value. As such, we maintain our BUY rating and S$3.02 DCF-based fair value.
StarHub – OCBC
Invests in ASE JV
Building the ASE network. StarHub Ltd announced that it has joined several Asian carriers to build and operate the Asia Submarine-Cable Express (ASE) – a 7,200 km undersea cable system linking Singapore directly to Japan, the Philippines and Hong Kong. The ASE will also have connectivity to Malaysia and potentially future connectivity to China, as well as other SE Asian countries. StarHub, NTT Communications, PLDT and Telekom Malaysia will jointly build the system, which is estimated to cost around US$430m (S$552m), and is expected to start operation by Jun 2012. According to StarHub, the launch of ASE will bring about strong connections into the US via the Asia-America Gateway, and also allow network operators to compete on speed and reliability, as the ASE will boost a total bandwidth capacity in excess of 15 terabits per second and is specifically designed to avoid earthquake and typhoon-prone regions.
Internal resources sufficient for now. StarHub did not give further details on how much is its investment in the ASE. Assuming that each partner takes an equal share of the cost, we estimate that StarHub could be investing up to S$138m over the next 18 months to build the infrastructure. We also understand that other telco operators typically buy-in into such ventures closer to the operational date, thus further reducing the investment put in by the original partners. In any case, looking at its cash balance of S$246.8m (as of 30 Sep 2010), net gearing of just under 52%, and free cashflow of S$308m for 9M10, we believe that StarHub should be able to finance its investment using internal resources and more bank loans. We do not expect the new investment to put its current S$0.05/share quarterly dividend at risk.
Data usage on the rise. We are positive on the latest development for a couple of reasons. Firstly from a demand point of view, we agree that the phenomenal rise of data usage is expected to continue, fuelled by the proliferation of smartphones, tablets and other Internet-ready devices that are constantly fetching data to keep users connected. Hence having access to such infrastructure is crucial; and by being an “owner”, StarHub will also be able to benefit from a cost point of view. Note that ASE is the telco’s second investment in submarine cables.
Maintain BUY with S$3.02 fair value. As such, we maintain our BUY rating and S$3.02 DCF-based fair value.