Category: StarHub
StarHub – DBS
Investors may seek higher yield
• The competition across mobile segment may continue to rise as StraHub seeks to defend its market share.
• Given that M1 offers over 7% yield with stable earnings prospects, investors may seek atleast 9% yield from StarHub.
• Based on 9% yield, our revised target price is S$1.90. We downgrade StarHub to FULLY VALUED.
Our key assumptions for StarHub under the base case scenario. Given that about 10% of StarHub’s pay TV subscribers mainly subscribe for EPL matches, we have assumed subscriber decline of 10%/8%, 10%/8% and 3%/2% across pay TV, broadband and postpaid mobile segments respectively over FY10F/11F. We have assumed cable TV ARPU to decline by 20%/10% for FY10F/11F. We expect earnings decline to reverse in FY12F. Given that StarHub’s free cash flow exceeds earnings, we forecast DPS to be over 16 Scents for FY10F and beyond, translating to 98% payout ratio. StarHub has already committed to 18 cents dps for FY09F.
Mobile market share may not decline, if StarHub turns more aggressive. We believe that StarHub could turn more aggressive on the mobile front with higher handset subsidies and other promotions. In our opinion, StarHub may deepen the bundling discounts, so that its pay TV subscribers retain StarHub even when they subscribe to SingTel’s mio TV for EPL matches. StarHub’s mobile market share could still be protected, although not without adverse impact on the margins.
How much yield would investors seek? Due to the risk of earnings decline in FY10F/11F, investors may potentially seek higher yield from StarHub. Given that M1 offers over 7% yield with stable earnings
prospects, investors may seek at least 9% yield from StarHub till earnings decline trend reverses in FY12F. Assuming 17 cents dps in FY10F, based on 9% yield, our revised target price is S$1.90. We downgrade StarHub to FULLY VALUED.
TELCO – CNA
Regulatory changes best bet for StarHub, say analysts
StarHub’s stock price has come under pressure of late, following news that it had lost the rights to broadcast English Premier League football matches in Singapore.
And it took another hit this week when it became the only player not offering the popular iPhone.
With sentiment in its outlook depressed, market watchers say StarHub’s best bet for a change of fortune will be for authorities to make content sharing compulsory.
StarHub is clearly in damage control mode, trying to find its footing again after having lost the rights to broadcast EPL matches in Singapore.
Investors started selling out, with the counter now down by some 10 per cent since the news broke – from S$2.17 per share on September 30 to S$2.02 at closing on October 14.
Market-watchers say it is going to get tougher, now that M1 is also selling the iPhone, leaving StarHub as the only telco in Singapore not carrying the popular mobile handset.
At least three brokerages downgraded their calls on the counter this month. But some analysts say they started to hold a pessimistic view even earlier.
Gregory Yap, senior investment analyst at Kim Eng Research, said: “I took the view that if StarHub were to win the EPL rights, it would have meant that they would lose more money in pay-TV, which is already a loss-making enterprise for them.
“And if they were to lose the EPL rights as what has turned out, then they would start to lose their subscribers to SingTel. Either way it was no-win scenario.”
Analysts say StarHub’s best hope for a turnaround may be a change in regulations to allow content-sharing. This could allow for the resale of broadcasting rights and allow other media companies to screen EPL on their own platforms.
But it is still uncertain if changes will happen at all. It would also depend on whether the EPL allows this for Singapore.
Meanwhile, M1 has become a favourite with analysts – because it is seen as having avoided a bruising battle for the football rights.
One reason is that it had escaped what has been labelled a bruising battle for the football broadcast rights, and has been able to focus on steadily improving their market share.
The view on SingTel is also optimistic due to its strong balance sheet, which can help it tide over short-term losses more easily than its rivals.
But some say it may be a good time to move away from the defensive telco industry and capitalise on high-beta stocks instead.
Roger Tan, vice president of SIAS Research, said: “In a good time, you would see higher beta stocks rising faster than the underlying STI. At this point of time, with the economy recovering, and investors coming back into the market to pick on good stocks, investors may be able to enhance their returns more with taking higher beta stocks, rather than being defensive with the telco side.”
Analysts are expecting results for the telco sector to show growth for the third quarter, and some are waiting till then to review their stock calls. – CNA/de
SingTel, StarHub – BT
SingTel, StarHub to face off again in World Cup 2010
Bidding now open; results expected to be announced in next six months
Singapore’s two pay-television rivals will lock horns on the soccer pitch once more in their bid to snap up broadcast rights for the upcoming Fifa 2010 World Cup tournament.
Singapore Telecommunications has confirmed that it will be looking to add the World Cup trophy to its string of sports programming triumphs over StarHub.
‘Yes, we plan to throw our hat into the (World Cup 2010) ring as well,’ SingTel Singapore CEO Allen Lew told BT in a recent interview.
If SingTel succeeds in it bid for the event, which kick-offs next June in South Africa, it will corner nearly all major soccer-related content in the local pay TV market.
On Oct 1, the operator landed the exclusive right to screen the 2010 to 2013 seasons of the coveted English Premier League (EPL), the crown jewel of StarHub’s sports programming for the last 12 years.
SingTel also has access to the Uefa Champion’s League and Europa League, as well as the Italian Serie A on its mio TV platform. In addition, it has sports channels from ESPN Star Sports under a three-year content partnership.
ESPN Star Sports has already won the rights to broadcast Fifa World Cup 2010 in a number of countries in the Indian sub-continent including India, Pakistan, Bangladesh and Sri Lanka. The company declined to comment when asked if it is looking to add Singapore to the list.
StarHub however, will be looking to even the score with SingTel after its recent EPL loss.
‘We are in talks with Fifa on the World Cup broadcast rights,’ admitted company spokeswoman Jeannie Ong.
StarHub was the sole official local broadcaster for the 2006 World Cup in Germany. At that time, it introduced a special pay-per-view package that contained live telecasts of all 64 matches, along with prime-time repeats and match highlights.
The operator also signed a contract with MediaCorp to allow the latter to screen four key World Cup 2006 matches on its free-to-air channels.
As at April this year, Fifa has tied up media deals with 199 companies around the world for World Cup 2010. Besides ESPN Star Sports, other regional rights holders include M-League Marketing and Middle Eastern media conglomerate International Sporting Events.
A fresh round of bidding is now open and the results should be announced within the next six months.
Fifa does not disclose the value of individual bids but media rights typically account for the lion’s share of the tournament’s revenue. In 2006, the 1.2 billion euros received from media companies accounted for around 63 per cent of the event’s combined takings.
StarHub – CIMB
From hubbing to drubbing
More light on the BPL loss
Maintain UNDERPERFORM, target price and earnings forecasts. We maintain our earnings forecasts pending details on the impact on StarHub’s top and bottom lines from the loss of British Premier League (BPL) broadcasting rights to SingTel during StarHub’s 3Q09 conference call. There is no adjustment to our DCF-based target price of S$1.58 (WACC: 9.4%, LT growth: 1.0%). Maintain UNDERPERFORM as we remain concerned about: 1) a potential spike in pay-TV churns; c) an unravelling of its hubbing model; and 3) the prospect of SingTel snaring more content from StarHub. StarHub’s CEO has provided some insights into the firm’s loss of the 2010-12 BPL rights. We believe the group had underestimated the threat posed by SingTel, could not match the financial muscle of SingTel and was handcuffed from bidding too aggressively as it would not have been able to pass on the increased costs given probable caps on retail tariffs.
StarHub’s CEO’s thoughts on the loss are as follows:
• The outcome of the auction process was not what StarHub had wanted or expected as the CEO had felt strongly that StarHub could retain the rights either on an exclusive or non-exclusive basis.
• While not underestimating SingTel, he felt it was too risky for SingTel to take on BPL because:
• Firstly, SingTel’s ADSL2+ service is not adequate in many parts of Singapore to deliver acceptable-quality IPTV services and SingTel would not be able to serve the entire market with IPTV unless it upgraded its network. Thus, StarHub thought SingTel would bid aggressively only in 2012.
• Secondly, the MDA had been rather explicit that it was studying the BPL situation and would look very unfavourably on any efforts to raise retail pricing.
• As it was not recovering the cost of Champions League and BPL, had network issues and could not raise retail prices, StarHub believed that it did not make sense for SingTel to bid aggressively this round. Interestingly enough, the prospect of a joint bid was possible until the last moment.
• StarHub believed that winning the rights would not benefit SingTel’s business. While unable to divulge SingTel’s bid, StarHub noted that it was a substantial amount over what StarHub was paying. The press has estimated the amount at S$283m (S$400m).
• StarHub’s CEO revealed that only 10% of customers take up the sports package and at least three basic groups. There are more subscribers who sign up to content other than sports. StarHub believes there would be a minimum loss of its pay-TV service presence in households. With negative margins from BPL eliminated, it can allocate more resources to shoring up content and its hubbing proposition.
StarHub will be providing more details on the impact of the loss on its top and bottom lines in its 3Q09 results. It notes that the damage would not be as big as some had feared.
Comments
Underestimated SingTel. Our overall impression was that StarHub had underestimated the threat posed by SingTel. In a post-NGNBN world and in its bid to transform into a multimedia company, it will be critical for SingTel to acquire meaningful content to differentiate itself. The problems outlined by StarHub, while legitimate, are not completely insurmountable. By July 31, SingTel’s ADSL2+ network should reach the entire island from 90% coverage now and issues over its quality should be resolved by then. SingTel Singapore’s CEO Allan Lew was quoted as saying that every home and every business will have access to BPL by that time.
Does not possess the same financial muscle. The other main point was that StarHub lacks the financial muscle to compete with SingTel in a head-on bidding war by virtue of its smaller size. StarHub’s ability to bid up the cost was effectively curtailed by the MDA’s warning to potential bidders about raising retail tariffs. We feel that StarHub was not willing to absorb further pain and margin compression as this would have destroyed shareholders’ value. Cable margins had fallen to 26% from 19% in 1Q08. SingTel, on the other hand, has no such qualms as it is seeking to establish its foothold in pay TV. While dilutive, the impact can be absorbed by its other businesses.
Does not change our view. SingTel is now the premier sports content provider having snared the game-changing BPL rights. The next content up for grabs is the 2010 World Cup where SingTel will give it its best shot. As other exclusive content comes up for renewal after end-2011, we believe SingTel will continuously bid for this in the areas of education, entertainment, movies and drama. StarHub currently has rights to exclusive content such as HBO, National Geographic, CNN, Cinemax and Discovery.
Still a winner’s curse. Although the win would completely transform SingTel’s pay-TV business, it would still be overall negative for SingTel, in our view, as:
• SingTel is unlikely to recover the cost of the rights, which has skyrocketed from S$250m in the 2007-09 seasons to an estimated S$400m. We believe that SingTel will be a loss leader in this segment, leading to negative margins in the initial years.
• SingTel will charge S$23/month, in the first year, for subscription to BPL alone and S$25/month for BPL plus additional sports content (tennis, F1, ESPN, ESS, etc). It would not raise prices in the second and third years. The S$25/month is the same as StarHub’s current charges for its sports package.
We believe that positively, mio TV could be flooded with 239K new subscribers, assuming 45% of the subscribers are on sports, from its base of 101K. SingTel has agreed with StarHub’s assessment that about a quarter of households watch sports alone or an estimated 286K households.
The negative impact is estimated at S$62m p.a. or a marginal 3% on SingTel Singapore and 1.4% of the group’s FY11 EBITDA. We arrive at this figure after assuming that the rights are won at a cost of S$400m (S$133.3m per annum) and SingTel manages to lure about 239K subscribers (entire estimated 45% of subscribers who sign-up for sports packages at StarHub) who will pay S$25/month (S$71.6m per annum). Our estimate does not take into any account additional revenue from advertising.
What sort of impact on StarHub? As customers who sign up before 1 Oct 09 can cancel after Jul 10 without paying a penalty, StarHub’s FY10-11 core profits could be reduced by 19-25% as customers churn and its topline could be crimped to 9%.
Losses could escalate if a mass defection occurs. This is based on the following assumptions.
• While less than half of the subscribers are on sports packages vs. our earlier expectation of 60-70%, we have assumed a 20% churn for FY10-11 as our base case. We believe that some customers may want to retain their subscriptions for other content such as movies, learning and entertainment.
• In addition, we expect some unravelling of its hubbing appeal where we have assumed that 50% of the pay-TV churners will be postpaid mobile and broadband users who will also churn.
Valuation and recommendation
Maintain UNDERPERFORM, target price and earnings forecasts. We maintain our earnings forecasts pending details on the impact on StarHub’s top and bottom lines from the loss of BPL broadcasting rights to SingTel during StarHub’s 3Q09 conference call. There is no adjustment to our DCF-based target price of S$1.58 (WACC: 9.4%, LT growth: 1.0%). Maintain UNDERPERFORM as we remain concerned about: 1) a potential spike in pay-TV churns; c) an unravelling of its hubbing model; and 3) the prospect of SingTel snaring more content from StarHub.
TELCO – Kim Eng
Telco Sector Update
Previous day closing price: StarHub $1.97, SingTel $3.08
Recommendation: StarHub Sell (maintained), SingTel Buy (maintained)
Target price: StarHub $1.80, SingTel $3.51
SingTel relieves football fans’ worries…
SingTel has sprung a surprise on consumers and stolen a march on StarHub. From Aug next year, it will cost only $25 a month to watch BPL and other sports content on mio TV ($23 for just BPL) versus $49 for StarHub. Unlike StarHub, there is no basic tier fee, while UEFA Champions League and Europa League as well as the first set-top box (in high definition) are also free. While households without a fixed phone line will need to pay a monthly charge, we estimate consumers will still stand to save 39-55% over StarHUb’s present charges.
…and goes for StarHub’s jugular
By making its pricing for sports content so attractive and announcing it just 10 days after it won the BPL bid, SingTel has made the consumer’s decision to switch an easy one and made StarHub’s response so far (e.g. calling for public consultation over SingTel’s win, waiving termination fees for those who recently signed up just for BPL, etc) pale in comparison. The only stumbling block now lies in the unwieldy arrangement where dual provider households need to have two set-top boxes. While there is still a need for a fixed phone line, the NGNBN will do away with that requirement once it is up and running.
SingTel’s moves are rational despite price aggression
Although SingTel is unlikely to recoup the cost of BPL through Pay TV subscriptions alone, we reckon it will unveil higher-priced, higher-value bundles to attract subscribers to buy its broadband and mobile services as well. Also, SingTel may increase prices for future seasons. There is a good chance it will be able to make this a profitable proposition when viewed from a triple-play perspective and on a three-year horizon. In addition, the advent of NGNBN will make the local telco scene even more competitive and SingTel’s move to secure market share ahead of that seems a rational one despite its willingness to drive up content costs.
StarHub could be in for more pain
In the next 12-24 months, we think SingTel is very likely to use its deeper financial pockets to pursue the acquisition of other sports content such as World Cup as well as entertainment and news channels such as CNN, CNBC, Discovery, HBO and Cinemax. Success in this arena as well as the closing of the technological gap between SingTel and StarHub (SingTel has promised to deliver mio TV access to the whole country by 31 July 2010) could potentially mean more pain in store for StarHub.
Recommendations maintained
On balance, we maintain our present recommendations – Buy for SingTel with a target price of $3.51 and Sell for StarHub with a target price of $1.80.