Category: StarHub
StarHub – BT
StarHub Q4 net profit down 31% at $98m
Revenue rises 14% despite pressure on margins and falling mobile market share
STARHUB yesterday posted net profit of $98 million for the fourth quarter ended Dec 31, down 31 per cent due to tax credit adjustments.
For the full year 2007, net profit was $330 million, down 8 per cent, on a 12 per cent rise in revenue to $2 billion. StarHub tax credits were $20 million and $77 million for 2007 and 2006 respectively.
Despite pressure on margins and falling market share in the all-important mobile phone segment, the second-largest telco in Singapore managed a credible 14 per cent rise in Q4 total revenue to $539 million and saw free cash flow jump 23.4 per cent to $67.2 million. Free cash flow for the full year grew 45 per cent to $483 million.
StarHub decided to reward shareholders with a higher fourth-quarter dividend of 4.5 cents, up from 3.5 cents, bringing the total for the year to 16 cents.
It further delighted shareholders by promising to raise dividend payout for 2008 to a minimum 18 cents.
The confident telco also said it expects full-year operating revenue to grow 10 per cent and capital expenditure to not exceed 12 per cent of operating revenue.
But for the first time, StarHub said it expects Ebitda – earnings before interest, tax, depreciation and amortisation – to decline to 33 per cent for 2008. It was 33.7 per cent in 2007.
Chief executive Terry Clontz said while he expects continued growth, pressures on margin will increase given the fierce competition.
Without naming its bigger rival Singapore Telecommunications, which has increased share of the lucrative mobile phone segment by aggressive marketing, Mr Clontz said ‘it only takes one to disturb the balance’, though he believes that in the long run, rational behaviour should prevail in a mature market such as Singapore.
During the quarter under review, StarHub’s mobile unit was as usual the top performer, with sales up 14 per cent to $275.6 million and 13 per cent to $1 billion for the full year.
Customer base grew 14 per cent to 1.76 million at end-2007 but StarHub’s market share eased to 31.3 per cent from 33.1 per cent a year ago.
Singapore’s mobile penetration has risen to 122.5 per cent fuelled by the rising number of foreign workers and SingTel has the lion’s market share in excess of 41 per cent.
The fight for market share has been intensifying since late last year when Singapore announced that mobile number portability (MNP) will be introduced in June.
StarHub, SingTel and third-place MobileOne have been spending more to retain customers ahead of June and the telcos’ marketing efforts will get more bitter in order to defend their customer bases ahead of the start of MNP.
Mr Clontz said while market share is important, his focus is on increasing shareholder value and cash flow.
He also noted that StarHub still has the highest average revenue per user per month at $26 for pre-paid and $79 for post-paid.
StarHub’s cable TV revenues grew 20 per cent for the quarter to $95 million as it managed to increase subscription prices to customers and sign on more viewers. Despite SingTel’s entrance into the pay-TV space, StarHub has managed to defend its position as the premier provider by cornering the exclusive broadcast rights to all the must-watch sports events, such as bagging this year’s UEFA European Championship football matches.
Customer base rose 4 per cent to 504,000 at end-2007, giving StarHub a household penetration of 45 per cent.
TELCOs – BT
StarHub seen gaining with portability
STARHUB has emerged as the top pick among Singapore telcos, as the telecom sector prepares for the new regime whereby customers will be able to switch mobile-phone operators while keeping their established phone number, says Cazenove & Co.
The research house is also bullish on MobileOne (M1), but recommended an ‘underperform’ on SingTel.
At a briefing yesterday, analyst Lai Voon San said he expects the new system, called mobile number portability (MNP), to dominate the telecom sector here, with many average consumers switching to StarHub given the bundled discount they can get from the latter’s strength in pay-TV.
‘We think that StarHub can grab an extra 10-15 per cent market share on top of what they already have now,’ he said. Customers will be offered incentives to have the same supplier for their mobile, pay-TV services and broadband telecommunications.
Mr Lai believes that SingTel is likely to be the biggest loser as it has the most post-paid subscribers at present. MNP is expected to be introduced here in May.
Mr Lai is similarly bearish on SingTel’s pay-TV service, saying: ‘No matter how much money they throw into it, it will be years before they make a return.’ He sees SingTel’s project as only driving up the price of content for consumers.
He said M1 stands out for its forecast dividend yield of 9.7 per cent this year – the highest in Cazenove’s telco universe. The firm’s earnings are relatively stable, Mr Lai said.
Looking ahead, he said that the next generation national broadband network (NGNBN) should gain further momentum through the year ‘as decisions are expected over who will build the network’.
While this could hurt incumbents SingTel and StarHub, the latter’s pay TV dominance will support its competitive outlook with SingTel again the most vulnerable.
‘We expect bundling to gain momentum as SingTel tries to compete against StarHub and offer more discounts,’ he added.
Cazenove sees the telecom sector in Asia-Pacific as a safe haven amidst the market volatility this year, and is expected to outperform the other sectors.
The major themes across the region include growth in wireless subscriber, regulatory changes and regional expansion of assets.
China is expected to add 110 million wireless subscribers, while Indonesia will see another 31 million new ones.
Mr Lai sees policy implementations and changes ahead for 2008, including additional licences in places like Thailand and Indonesia, MNP in Singapore and Malaysia, and 3G rollouts in China and Thailand.
In addition, Cazenove expects more company mergers and acquisitions (M&A) as telcos expand their areas of operation. Telekom Malaysia’s de-merger of its regional assets is likely to bring in a strategic partner which will further highlight M&A activity. Others like SingTel remain active buyers.
Cazenove has set fair values of $3.50 and $3.35 on StarHub and SingTel respectively.
TELCOs – BT
Telco stocks expected to ring in good value
Analysts see them as fairly safe bets in times of economic uncertainty next year
SINGAPORE’s three telco stocks are among the best bets as defensive stocks for next year amid economic uncertainty and continuing volatility in the financial markets.
Not surprisingly, Singapore Telecommunications, the biggest listed company by market capitalisation here, gets the most votes.
But StarHub and M1, ranked the Number 2 and 3 telco players, have their own fans, too, who look to the smaller telcos for their high dividend payouts.
Telco stocks will continue to perform well next year benefiting from the liberal foreign workers policy as well as Singaporeans’ continuing love affair with the handphone.
They also offer strong recurrent cash flows and attractive dividends and cash payouts. In addition, the telcos’ focus on their own business and their conservative management teams are reassuring to shareholders in that they hold no nasty surprises in terms of investments in high-risk financial instruments or foreign currency trades that other companies have bought to maximise returns on their spare cash.
‘With rising oil prices and lingering concerns about the impact of the sub-prime crisis on the US economy, we continue to maintain a defensive stance focusing on stocks and sectors with good earnings visibility, reasonable valuation and attractive yield,’ said Lim Jit Soon, Citigroup Singapore strategist, in a report last month.
‘We overweight telcos, media, banks and conglomerates. We are neutral, property and underweight transport, tech, consumer staples and healthcare,’ he said.
DBS Vickers Securities’ Sachin Mittal this month said the telecom sector is a direct beneficiary of healthy economic and population growth from the influx of foreign workers and tourists.
The pre-paid mobile phone subscriber growth is estimated at around 150,000 every year for the next 10 years.
DBS has forecast 6.5 per cent economic growth in 2008.
SingTel gets the most votes from analysts for its strong performance and ability to win the lion’s share of new subscribers.
SingTel is also the top choice for its investments in the top growth markets in the region – in particular, its 30 per cent stake in India’s Bharti and 35 per cent interest in Indonesia’s Telkomsel.
Even potential regulatory reversals on the spectrum front at Bharti and recent anti-monopoly rulings in Indonesia are seen as small risks on the horizon.
Macquarie Research analyst Ramakrishna Maruvada calls SingTel the ‘perfect cocktail’.
‘Our positive thesis rests on three planks: fundamental value driven by Indian investment and prospects for capital management; supportive relative valuation metrics; and top-down thematic considerations amid global credit concerns,’ he said.
Mr Maruvada said SingTel’s estimated $4.5 billion surplus capital by FY 2009 provides room for its regional expansion strategy or capital management initiatives.
He added that market focus on credit issues has led to a global re-rating of liquid telecom stocks offering diversified exposure to emerging markets. ‘SingTel benefits from this theme.’
It isn’t that the three telcos don’t face risks.
These include mobile number portability to be introduced next May and the nation-wide broadband network which will bring in more competitors.
But their strong cash flow generating ability trumps most risks.
A UBS report on the 2008 outlook for Asian telecoms said that as the markets mature, many operators are facing a similar enviable dilemma: slowing topline growth and a build-up of cash.
UBS estimated SingTel’s dividend yield to be 3.5 per cent and 4.1 per cent for 2007 and 2008, respectively.
For StarHub, it forecast dividend yields of 13.2 per cent and 5.4 per cent; and for M1, it’s 15.5 per cent and 7.7 per cent.
DBS’s Mr Mittal sees 3.6 per cent cash yield for SingTel, 5.3 per cent for StarHub and 7 per cent for M1 in the current year.
Going forward, he expects StarHub and M1’s total cash yield to be up to 10 per cent for the next one to two years as a result of capital management initiatives.
StarHub – BNP
We held an investor luncheon with StarHub’s management last week. Questions mainly centred on the outlook for the various segments, regulatory updates, dividend policy and iPhone dynamics. We expect StarHub to pay out special DPS of SGD0.15 in February next year, which should act as a catalyst for the stock. Maintain BUY and TP of SGD3.45.
Key points from investors luncheon
Key business segments to see healthy growth
StarHub expects its three key business segments –mobile, broadband and cable TV – to see healthy growth. The key drivers for growth are: 1) an expanding population; 2) more expatriates; and 3) buoyant economic outlook. Management expects penetration rates for mobile to go up to 130-135% (from 114.1% at end-October) in three to five years and for wired broadband and cable TV to go up to 75-80% (from 65-68%) and 55-60% (from 44.3%), respectively, in two to three years.
MNP impact neutral at worst, NBN details out tonight
The implementation of full mobile number portability (MNP) is expected in May-June and is likely to result in higher retention costs for one to two quarters as all three operators seek to retain customers on long-term contracts. With its attractive bundled offerings, we believe the impact on StarHub is neutral at worst. As for the National Broadband Network (NBN), a request for proposal is scheduled for release tonight, which would provide us with more details. Our view is that it is unlikely to be too disruptive to the current network incumbents.
Expecting special DPS of SGD0.15 in February
Earlier this year, StarHub paid out additional cash of SGD442.3m to shareholders based on a targeted net debt to EBITDA ratio of around 1.8x 2006 EBITDA. Assuming management sticks to this target of 1.8x, we believe StarHub could potentially dish out about SGD260m to shareholders, which translates into SGD0.15 per share. This would translate into a yield of 5.1% and is on top of the SGD0.16 DPS that StarHub has already committed to pay out in 2008.
iPhone’s current arrangement may not work here
We understand that Apple’s current arrangement, which involves an exclusive operator (AT&T in US), may not work in Singapore as regulations here do not allow exclusivity. It will be interesting to see if Apple will ditch its current arrangement or will bypass Singapore altogether.
Maintain BUY; target price of SGD3.45
StarHub’s defensive qualities make it stand out in times of stock market uncertainty. Maintain BUY, with DCF-derived TP of SGD3.45.
StarHub – CIMB
ARPU growth story
ARPU growth story
We have updated our postpaid mobile ARPU assumptions to reflect our view that StarHub is poised to enjoy postpaid mobile ARPU growth from the successful take-up of MaxMobile (Singapore’s fastest wireless broadband service with exclusive BPL content) as well as recent innovative roaming plans, e.g. OneSIM Indosat roaming service and pay-per-day data roaming flat-rate service under the Conexus Mobile Alliance.
While we maintain our ARPU assumptions for pay TV, we believe there is scope for upside surprise in 2008. The potential surprise is likely to come from increased sales of add-on packages from a rejuvenated program offering. The sports channel repricing that took effect from October 2007 has been factored into our assumptions.
Poised to ride on population growth
We have also raised our subscriber growth estimates for StarHub to reflect our view of robust immigration flow into Singapore and expectation for StarHub to get more aggressive in defending its mobile subscriber market share at around 33%. We have gained greater confidence in StarHub’s will to defend its market share following our recent discussion with management and on-the-ground observation of promotional activities.
Valuation and recommendation
Maintain Outperform with higher target price of S$3.76. Earnings for FY07-09 are raised by 1-5% to reflect postpaid ARPU growth opportunities and a more robust subscriber growth from Singapore’s immigrant boom. Accordingly, our DCF-based (WACC: 6.9%, terminal growth: 1%) target price goes up to S$3.76 from S$3.66. Riskreward looks compelling with downside risk limited by hefty yield of over 10% and share buybacks at below S$3.00. StarHub is our top pick for the Singapore telco sector for having the best exposure to telco service consumption growth in Singapore on the back of an immigrant boom and the fastest wage growth in seven years. StarHub continues to be the best-in-class triple-play operator and enjoys distinct advantages in terms of exclusive content (e.g. BPL) and the fastest wireless and wired broadband access in Singapore.