Category: StarHub
TELCOs – OCBC
1QCY10 Scorecard; Maintain Overweight
1QCY10 results show margin compression. All three telcos – MobileOne (M1), SingTel and StarHub – showed signs of margin compression in their 1QCY10 results recently, no doubt hit by higher handset subsidies for highly sought-after “smartphones” like the Apple iPhone 3GS. Still, the strongerthan-expected demand for these smartphones saw revenue coming in ahead of our estimates.
Review of operations. As a result of the higher handset subsidies, acquisition costs for all the three telcos have risen quite sharply, and they are expected to remain relatively high as smartphones remain hotly sought after. Meanwhile, consumer spending (ARPU) has dipped slightly in 1QCY10 but we note that this is mainly due to the shorter Feb month as well as the Chinese New Year festivities. On the broadband front, while both SingTel and StarHub have managed to increase their subscriber base, the ARPUs have declined. For Pay TV, StarHub continued to add new subscribers, as did SingTel, but StarHub’s ARPUs have come down and may continue to decline in 2HCY10.
Major Pay TV revamp. Still on Pay TV, the government initiated a major revamp in the industry by requiring Pay TV providers to cross-carry each other’s content that is acquired or renewed on an exclusive basis. In short, Pay TV customers will be able to watch all Pay TV content with their preferred operator and need not pay any extra fees for doing so. Given StarHub’s much larger installed base, we believe the latest development is slightly more positive for StarHub. We also think that the move may provide an opening for other players like M1 to enter the market without having to spend too much on building their own Pay TV infrastructure.
Stable outlook for 2010. Going forward, all three telcos expect their Singapore operations to remain stable or show slight growth, but most note that EBITDA margins are likely to decline slightly this year; StarHub for example, expects its EBITDA margin to hover around 28% vs. the historical average of 32-35%. Nevertheless, due to their strong cashflow-generating 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$0.20/share, or S$0.05/share per quarter.
Maintain Overweight. In light of the increased volatility in the market due to the ongoing uncertainties in Europe, we continue to like the telcos’ defensive earnings and relatively attractive dividend yields. Maintain OVERWEIGHT.
TELCOs – BT
iPhone still leads in Singapore: AdMob
iPhone OS is also the leading OS in Australia and HK
THE iPhone still leads the pack of smartphones in Singapore, according to a recent report on the growth and usage of mobile Internet by AdMob, one of the world’s largest and fastest growing mobile advertising companies.
According to the report, handsets running the iPhone OS (operating system) have been some of the most sought after mobile devices in Singapore since October 2009, with an increase of almost 200 per cent in unique devices.
As at March 2010, the iPhone OS accounted for 89 per cent of smartphone traffic in Singapore, forming a significant proportion of marketshare.
The iPhone OS is also the leading OS in Australia (88 per cent) and Hong Kong (78 per cent), based on March 2010 traffic share.
Singapore also had the highest traffic from smartphone devices at 84 per cent of the first quarter of this year, rising 7 per cent from Q4 2009, despite traffic from smartphone devices in South-east Asia decreasing by 2 per cent to 38 per cent. Vietnam showed the weakest traffic from smartphone devices at 20 per cent, declining 2 per cent.
This quarterly South-east Asian mobile metrics report released by the company tracks the growth of mobile devices and usage, as well as manufacturer share trends, smartphone operating systems share and other devices in South-east Asia, Australia, and India in the first quarter of 2010. It then aggregates the data collected to provide insight on major trends in the mobile ecosystem.
For the first quarter this year, ‘there has been tremendous growth in the mobile Internet market regionally, with different reasons driving each market’, Jeff Merkel, AdMob’s vice-president and managing director of Asia-Pacific and Latin America, told BizIT. While smartphone devices, in particular iPhones, are strong drivers for the Singapore, Hong Kong and Australian markets, the Nokia platform remains dominant in India and Indonesia.
Commenting on Singapore’s outlook for the rest of the year, Mr Merkel said that ‘growth prospects are positive despite its limited population’, citing ‘improved data plans and rich and interesting mobile content’ as key drivers.
Mr Merkel also said that HP’s (Hewlett Packard) recent move to acquire Palm, a provider of smartphones powered by the Palm webOS mobile operating system, will prove ‘challenging in this competitive market.’
Nonetheless, he noted that Palm has an ‘interesting user interface, and it would be interesting to see how it can be made use of.’
According to the report, the Nokia N70 is the most popular smartphone device in countries such as the Philippines and India. It uses the Symbian OS, which is the most popular operating system in the region and accounted for 62 per cent of smartphone traffic in the first quarter this year, despite a traffic share drop of 4 per cent.
The iPhone OS came in second at 33 per cent of Q1 2010 smartphone traffic, up from 30 per cent in Q4. Jointly, Symbian and iPhone OS account for a 95 per cent share, down one per cent from the last quarter of 2009.
According to the report, manufacturers in South-east Asia, not including Nokia, Apple and SonyEricsson, accounted for 26 per cent of traffic, an increase from 21 per cent last quarter. LG and Motorola, both at one per cent each, gained significant traffic share.
Despite leading the manufacturer share, Nokia showed a loss of market share from 52 per cent to 47 per cent, while Apple had 15 per cent and SonyEricsson had 11 per cent of the traffic share based on Q1 2010 traffic. This data is extrapolated from AdMob’s mobile ad network and only looks at smartphone share.
TELCOs – CIMB
2010 World Cup rights secured
Injury time goal
Maintain UNDERWEIGHT. We maintain our UNDERWEIGHT position on the sector following confirmation that SingTel and StarHub have secured the 2010 football World Cup broadcast rights. If the media is correct on the cost of the rights, we doubt that SingTel and StarHub will be able to recover their costs, especially given the short time to secure advertisers as well as the high costs of subscription, which may deter takeup. This news reinforces our negative view on the sector. We remain concerned about the rise in content costs, pressure on broadband ARPUs and escalating subsidies. Our top pick remains M1 (TRADING BUY) for its capital-management potential and benefits from a levelling playing field thanks to NGNBN.
The news
StarHub and SingTel have announced that they have both won the rights to the 2010 football World Cup. Instead of a joint bid, FIFA has awarded both parties individual non-exclusive broadcast rights. This means that both will pay FIFA separate sums rather than a lump sum. The rights would enable them to offer all 64 matches on their own networks. Subscribers who sign up before 1 Jun will be charged S$66 (early bird discounts) while those who sign up after 1 Jun must pay S$88. Businesses such as pubs and restaurants reportedly have to pay S$2,888-4,888 to show the tournament on their premises. While no details of the winning prices have been announced, it is believed that both operators have to fork out a total of S$21m for the rights, about 50% less than FIFA’s initial demand.
Comments
Not a surprise. We were not surprised by this development as the press had already speculated on this outcome. The main sticking point had been cost, which is thought to have fallen to S$21m from the S$40m that FIFA originally demanded.
Can they break even? With only 30 days to the tournament, we believe their opportunities to exploit any advertising revenue will be limited. Instead, telcos will have to rely more on subscription fees and to a smaller extent, mobile data from news and goal highlights to cover costs. Indeed, SingTel’s chief of content and media services, Edward Ying, said, “The objective is to break even. Whether we break even depends on subscriptions.”
The S$66 charge for early birds and S$88 for normal subscriptions are nowhere near the S$127 that we think StarHub and SingTel would need to charge their subscribers, in our scenario analysis, excluding any income from advertising and business subscriptions. This assumes that a generous 60% of households would sign up, above the “less than 50% of subscribers” that StarHub had said had signed up for its sports package. (An informal poll in our Singapore office indicated that six colleagues would sign up while seven would give it a miss.)
Moreover, even those prices may deter take-up as subscribers are now charged about 4.4x higher for early birds and 3.5x for normal vs. the 2006 World Cup rights. On top of that, the charges in Singapore will be among the highest in the region as Indonesia and Thailand intend to offer all 64 matches for free. The rights cost S$28.70 in Malaysia and S$52 in Hong Kong.
Small negative for both operators. As with StarHub’s experience in 2002 and 2006, we believe the high cost of rights will prevent both operators from achieving their breakeven objective. Therefore, we are negative on the news. While it may have secured goodwill for their customers, it comes at a cost to the operators’ bottom lines.
Valuation and recommendation
Maintain UNDERWEIGHT. We remain apprehensive over the rise in content costs in the short to medium term, pressure on broadband ARPUs, and escalating subsidies. Our top pick remains M1 (Trading Buy) as it has the most capacity for capital management, the biggest upside from NGNBN and should be the main beneficiary of content-carry regulations.
TELCOs – OCBC
Minimal World Cup Boost
Full 64-match broadcast. Both SingTel and StarHub have managed to secure the broadcast rights for all 64 matches of the month-long 2010 World Cup event in South Africa; this was done via two separate non-exclusive contracts after their earlier joint bids were repeatedly rejected by FIFA. SingTel will broadcast all 64 matches on its mio TV and mobile, with complimentary viewing on the Internet. Likewise, StarHub will also broadcast all the matches live across all three of its platforms – cable TV, Internet and mobile.
Pricing may be the sticking point for home viewers. The two telcos did not reveal how much they paid for the rights, but we believe that it is probably several times higher than the US$5m that StarHub reportedly paid for the 2006 World Cup event. Looking at the current packages, which cost (pre-GST) a minimum of S$66 before 31 May and S$88 thereafter, we note these are around four times more expensive than the packages of S$15 and S$25 that StarHub charged in 2006. A reason for the higher pricing could be due to the likely smaller advertising revenue given that the telcos only managed to secure the rights with a month or so to go before the event kicks off. We also note that the packages are higher than our back-of-the-envelope calculation of around S$40.
Likely good response from businesses. A dip in the takeup from home viewers could see, conversely, a better response from the business segment, as F&B establishments are likely to use the “live” telecasts to attract viewers who will not be subscribing for the event. As the pricing for businesses ranges from S$2888 (for the first TV set under 50 inches) to S$4888 (for the first TV set above 50 inches), a business customer is worth at least 44 to 55 home customers. Assuming that the telcos paid a total of S$20m for the rights and that the average subscription price is S$70/subscriber, the telcos would probably need to sell 280k packages to break even – we think that this is achievable.
Maintain OVERWEIGHT. In any case, we expect to see higher content costs for both SingTel and StarHub in the third quarter, which may depress margins; but we have already worked this into our estimates. Instead, we continue to like the telcos for their defensive earnings and high dividend yields, especially in the increasingly volatile market. Maintain OVERWEIGHT.
TELCOs – AmFraser
No edge scored with World Cup
• Both StarHub and SingTel have secured broadcast rights to 2010 FIFA World Cop, almost at the last hour much to the relief of die-hard followers in Singapore. Both operators will be offering all 64 matches ‘live’ over their TV, internet and mobile platforms.
• This turn of events is unexpected. Previous joint-bid by the two operators was rejected by FIFA. And while the two now secured the rights as separate bids, this non-exclusive award appear little different as both operators will offer the same pricing to consumers.
• We therefore conclude that the combined value of the separate bids is higher than the rejected joint bid. While we cannot confirm whether the bids for both operators are similar, to be sure, the content cost impact will be more visible on StarHub’s bottomline.
• Both operators will charge common pricing for the World Cup package – at $66 for early birds signed up by 31 May 2010, and after at $88. This is significantly higher than the $10.50 to $26.75 packages StarHub charged for 2006 World Cup.
• The hike in pricing is a strong indication of the premium in the bids. We think this just about covers costs for StarHub at best, with the event meant more as a branding and marketing exercise.
• Both operators are at status quo in respect to their Pay TV subscriber base. As both have secured rights, World Cup offers no edge to either operator.
• As such we expect little impact on StarHub’s bottomline, biased on the downside. On announcement of its 1QFY10 results on 6 May, we had just cut FY10F EPS by 11% (also see Report 7 May). At the same time, we lowered FV based on DCF approach, by 4% to $1.88. We’re comfortable to keep these numbers.
• No change to our ratings – SELL StarHub (FV $1.88) and HOLD SingTel (FV $3.05).