Category: StarHub
TELCOs – OCBC
4QCY13 results mostly tracking our estimates
- All largely in line
- Outlook still muted
- Yields are bit more decent
StarHub missed our forecast
Both M1 and SingTel reported 4QCY13 results that came in within our expectations, while StarHub’s results tracked below forecast. M1’s core FY13 earnings was 3.5% above our full-year forecast and SingTel’s 9MFY14 earnings met 73% of our FY14 estimate. But due to lower-than-expected EBITDA margin, StarHub’s core FY13 earnings was 5% below our forecast. Interestingly, M1 declared a special dividend, which brought its total payout to 121% of earnings; StarHub kept its payout at S$0.20 as guided.
Review of Singapore mobile operations
Total post-paid mobile subscribers grew by a stronger-than-expected 2% QoQ to 4.53m in the Dec quarter, led by StarHub (+5.2%), SingTel (+1.1%), then M1 (+0.4%). Meanwhile, the decline in monthly ARPUs appears to be stabilizing; and telcos are optimistic that ARPUs should improve as more subscribers switch over to the new tiered pricing plans with less generous data bundles.
Little change to FY14 outlook
M1 continues to expect moderate single-digit earnings growth, although capex will be slightly higher at S$130m (versus S$125m in FY13). SingTel still sees mid-single digit decline in group revenue and low-single digit fall in EBITDA for FY14 (ending 31 Mar); but expects lower S$2.2b capex spend versus S$2.5b guided previously. StarHub is still guiding for low single-digit revenue growth with 32% EBITDA margin (vs. 32.9% in FY13).
Yields are still decent
As before, the spectre of rising interest rates is looming; but the recent pullback in the telcos’ share prices is starting to bring dividend yields back towards the 5% handle (4.8% average forecast). Hence we think that these stocks should continue to have a place in any portfolio also for their defensive earnings. Maintain NEUTRAL on the sector.
TELCOs – OCBC
4QCY13 results mostly tracking our estimates
- All largely in line
- Outlook still muted
- Yields are bit more decent
StarHub missed our forecast
Both M1 and SingTel reported 4QCY13 results that came in within our expectations, while StarHub’s results tracked below forecast. M1’s core FY13 earnings was 3.5% above our full-year forecast and SingTel’s 9MFY14 earnings met 73% of our FY14 estimate. But due to lower-than-expected EBITDA margin, StarHub’s core FY13 earnings was 5% below our forecast. Interestingly, M1 declared a special dividend, which brought its total payout to 121% of earnings; StarHub kept its payout at S$0.20 as guided.
Review of Singapore mobile operations
Total post-paid mobile subscribers grew by a stronger-than-expected 2% QoQ to 4.53m in the Dec quarter, led by StarHub (+5.2%), SingTel (+1.1%), then M1 (+0.4%). Meanwhile, the decline in monthly ARPUs appears to be stabilizing; and telcos are optimistic that ARPUs should improve as more subscribers switch over to the new tiered pricing plans with less generous data bundles.
Little change to FY14 outlook
M1 continues to expect moderate single-digit earnings growth, although capex will be slightly higher at S$130m (versus S$125m in FY13). SingTel still sees mid-single digit decline in group revenue and low-single digit fall in EBITDA for FY14 (ending 31 Mar); but expects lower S$2.2b capex spend versus S$2.5b guided previously. StarHub is still guiding for low single-digit revenue growth with 32% EBITDA margin (vs. 32.9% in FY13).
Yields are still decent
As before, the spectre of rising interest rates is looming; but the recent pullback in the telcos’ share prices is starting to bring dividend yields back towards the 5% handle (4.8% average forecast). Hence we think that these stocks should continue to have a place in any portfolio also for their defensive earnings. Maintain NEUTRAL on the sector.
StarHub – OCBC
Downgrade to SELL; BPL likely non-event
- Likely no major BPL boost
- More downside risk ahead
- Downgrade to SELL
BPL cross-carriage likely non-event
StarHub Ltd will be able to cross carry the widely-followed BPL (Barclays Premier League) live matches for the upcoming 2013 to 2016 seasons; this after rival SingTel’s appeal against the MDA’s (Media Development Authority) direction was rejected. However, with a seemingly steep price point of S$59.90/month (before GST) for new subscribers (while existing mioTV subscribers continue to pay the current S$34.90 (before GST)), we suspect that any migration of subscribers from mioTV to StarHub’s cable TV platform would be quite muted. And even if there are migrations, StarHub subscribers will be paying the fees directly to SingTel.
Strong recovery after our upgrade
Meanwhile, StarHub has seen a strong recovery after we upgraded our rating from Sell to Hold on 3 Jun, with the stock rising some 9.5% to a recent S$4.39 high. Back then, we note that the dividend yield has risen back to around 5% (or 5.2% based on our fair value), but based on current price, the yield has fallen back to 4.7%, which is just decent. However, with 10-year SGS bond yields back to around 2.5%, we feel that further upside from here may be capped, especially with consensus siding towards further rate increases in the future.
Downgrade to SELL
In light of the likely muted boost from the BPL cross carriage and recent strong run-up in share price, we feel that the stock may have run ahead of its fundamentals. Recall previously that StarHub has guided for a lower single-digit revenue growth while maintaining its service EBITDA margin at 31%. As we are also keeping our DCF-based fair value unchanged at S$3.82 (already accounted for a higher risk-free rate), we foresee more downside risk from here. Hence, we downgrade our call back from Hold to SELL.
TELCOs – CIMB
Ringing up Mr Data
We upgrade Singapore’s telco sector to Neutral from Underweight following the 1Q13 results season on: 1) the surging adoption of tiered mobile plans; and 2) after upgrading SingTel to Neutral from Underperform on lower competition issues in Australia.
Nevertheless, competition in fixed broadband and pay TV remains a concern, especially for StarHub. We are also Neutral on the sector as valuations are still not compelling despite the recent de-rating. M1 (Outperform) is our top pick as it should be the biggest beneficiary of the adoption of tiered data plans and is also developing a new revenue stream in fixed broadband.
1Q13 results mainly in line
M1 and StarHub matched our estimates. As expected, StarHub declared a 5 Sct DPS while M1 did not. SingTel bucked the trend as its 4QFY3/13 earnings beat consensus and our expectations on the back of surprises from AIS, Globe, and Telkomsel. It also declared a 10 Sct DPS, above our expectation of 9 Scts.
Review of operations
Sector mobile revenue grew 2.5% yoy in 1Q13, up from 2.1% in 4Q12 as the shift to tiered data plans improved monetisation.
Pay-TV revenue remained flat from stiff competition. SingTel continued to take market share from StarHub. StarHub is preparing for BPL cross-carriage as ordered by the regulator despite SingTel’s appeal to reverse the order.
Fixed-broadband revenue remained muted, with growth down to 4.8% in 1Q13 from over 8% in the previous two quarters. This was despite rising fibre subscribers and could be blamed on intense competition.
2013 outlook still muted
Capex for the three telcos will be elevated for 2013 and should remain so in 2014, largely on LTE/4G spending. While M1 expects moderate earnings growth this year, SingTel and StarHub are more muted in their 2013 guidance. SingTel expects FY14 EBITDA to grow by low single digits and has raised its payouts to 60-75% from 55-70%. StarHub trimmed its revenue-growth guidance to low single digits from single digits and kept its EBITDA margins at 31%. Both M1 and StarHub have maintained their dividend guidance.
StarHub – OCBC
UPGRADE TO HOLD ON VALUATION GROUNDS
- 15% correction
- Yields back at 5%
- Upgrade to HOLD
Sharp fall after we downgraded our call
StarHub Ltd saw a sharp drop in its share price after we downgraded our call from Hold to Sell on 10 May following its 4Q12 results announcement; note that it had also lowered its revenue growth guidance from single-digit to low single-digit while maintaining its EBITDA margin on service revenue at 31% (versus 33% in 1Q13). Since then, the share price has fallen some 15% from S$4.72 to a recent low of S$4.01.
Rationale for our previous downgrade
However, we note the stock price has outperformed not only its peers but also the STI – and this outperformance was mainly driven by investors searching for yield. In our view, we do not see this as sustainable as this has made valuations pricey and the yield had also fallen to some 4.2%. And this made it “vulnerable” should the yield compression story falter. We were also concerned by the possibility of seeing a flight of out of the more defensive counters like telcos should investors take a more “risk on” approach. On hindsight, it appears that we were correct on both counts.
Revising fair value down to S$3.82
Going forward, the risk of rising bond yields could continue to sink the yield compression story. And since we are using a DCF-based valuation methodology, higher bond yields will result in our fair value easing from S$4.00 to S$3.82. Fortunately, as StarHub has maintained its S$0.20/share dividend payout this year (and is likely to continue to do so in our view), its dividend yield has risen back to around 5% (or 5.2% based on our fair value). From a valuation perspective, we upgrade our call from Sell to HOLD.