M1 – CIMB
Matching SingTel’s 4G prices
M1 does not appear to be trying to claw back market share, judging from the pricing of its new 4G small screen data plans, which closely mirror that of SingTel. M1 priced its 4G plans 5-27% above its 3G plans and 2-3% below SingTel’s.
Not surprisingly, it reduced its data bundles, mirroring SingTel, to better monetise data. The pricier 4G plans and reduced data bundles will help bolster its ARPUs. We maintain Neutral on M1 with a DCF-based target price (WACC 7.6%) and advocate a switch to StarHub, which offers higher dividend yields and potential for capital management.
What Happened
M1 launched new small and large screen data plans and introduced nationwide 4G services. The key takeaways from the unveiling are:
1) M1’s 4G plans are S$10.70/month or 5-27% more expensive than its equivalent 3G plans and 2-3% below similar SingTel plans.
2) M1 reduced voice bundles, threw in more SMS and raised the price of its top-end plan marginally compared to its previous small screen data plans (Figures 1 and 2).
3) Not surprisingly, it divided data bundles from a flat 12GB to tiered amounts of 2GB, 3GB, 5GB and 12GB, mirroring SingTel.
4) M1 also launched 4G large screen data plans.
The key difference between the operators’ plans is recontracting M1 users will be given extra 1GB data on the new small and large screen plans.
What We Think
We view M1’s upward repricing and tiering of data bundles positively but they are unlikely to help the telco claw back market share (Figure 5) as they are very similar to that of SingTel. Throwing in 1GB extra for recontracting users will help it retain customers but, overall, will not appeal to non-M1 customers. SingTel’s offerings are still more attractive as it also offers bundling discounts for pay TV and broadband. That said, the pricier 4G plans and reduced data bundles will help M1 bolster its ARPUs will help bolster its ARPUs.
What You Should Do
Switch out to StarHub, our top telco pick for its potential to raise dividends or undertake a one-off capital repayment, especially following its plan to sell bonds. M1 lacks re-rating catalysts and the above developments do not change our view.
M1 – CIMB
Matching SingTel’s 4G prices
M1 does not appear to be trying to claw back market share, judging from the pricing of its new 4G small screen data plans, which closely mirror that of SingTel. M1 priced its 4G plans 5-27% above its 3G plans and 2-3% below SingTel’s.
Not surprisingly, it reduced its data bundles, mirroring SingTel, to better monetise data. The pricier 4G plans and reduced data bundles will help bolster its ARPUs. We maintain Neutral on M1 with a DCF-based target price (WACC 7.6%) and advocate a switch to StarHub, which offers higher dividend yields and potential for capital management.
What Happened
M1 launched new small and large screen data plans and introduced nationwide 4G services. The key takeaways from the unveiling are:
1) M1’s 4G plans are S$10.70/month or 5-27% more expensive than its equivalent 3G plans and 2-3% below similar SingTel plans.
2) M1 reduced voice bundles, threw in more SMS and raised the price of its top-end plan marginally compared to its previous small screen data plans (Figures 1 and 2).
3) Not surprisingly, it divided data bundles from a flat 12GB to tiered amounts of 2GB, 3GB, 5GB and 12GB, mirroring SingTel.
4) M1 also launched 4G large screen data plans.
The key difference between the operators’ plans is recontracting M1 users will be given extra 1GB data on the new small and large screen plans.
What We Think
We view M1’s upward repricing and tiering of data bundles positively but they are unlikely to help the telco claw back market share (Figure 5) as they are very similar to that of SingTel. Throwing in 1GB extra for recontracting users will help it retain customers but, overall, will not appeal to non-M1 customers. SingTel’s offerings are still more attractive as it also offers bundling discounts for pay TV and broadband. That said, the pricier 4G plans and reduced data bundles will help M1 bolster its ARPUs will help bolster its ARPUs.
What You Should Do
Switch out to StarHub, our top telco pick for its potential to raise dividends or undertake a one-off capital repayment, especially following its plan to sell bonds. M1 lacks re-rating catalysts and the above developments do not change our view.
StarHub – CIMB
Calling for capital management with bond issuance?
We believe that StarHub’s planned issuance of a S$220m bond is a potential step towards a special dividend or increasing its dividend payout. This reinforces our view that StarHub is ripe for capital management given its low and rapidly-falling gearing level.
The bond issuance will be useful for Starhub given the impending spectrum auction, probably in 1H13. We maintain Outperform, with an unchanged DCF-based target price (WACC 7.9%, LTG 1.4%). StarHub remains our top Singapore telco and one of our preferred regional telco picks. This news and a further drop in gearing are key rerating catalysts.
What Happened
StarHub announced that it has priced its S$220m 10-year bond at 3.08%. This is part of its S$1bn multicurrency MTN programme. The closing date is 8 Sep 12. Proceeds will be used to finance capex and for debt refinancing.
What We Think
We think this is a step towards a special dividend or increasing its dividend payout. It reinforces our view that StarHub is ripe for capital management given its multi-year low net debt/EBITDA of 0.5x and strong FCFE. StarHub’s FY12-14 FCFE/share is S$0.22-0.29, based on our estimates and comfortably above its dividend policy of S$0.20/share.
The bond issuance will be useful given the impending spectrum auction, probably in 1H13. The regulator plans to auction off 1800MHz, 2.3GHz, and 2.5GHz spectrum for 4G service, which could cost S$138m if the auction proceeds, based on our estimates. However, telcos could walk away with the spectrum at the yet-to-be-announced reserve price if there is plenty of spectrum to go around.
What You Should Do
Remain invested in StarHub as we think this bond issuance will pave the way for StarHub to either raise its dividend payout or declare a special dividend/undertake a capital repayment. Although StarHub’s existing dividend yield of 5.6%, one of the highest among its regional peers, is already quite attractive, we assume DPS will rise to 22 cts in FY13, implying an even more impressive yield of 6.6%.
StarHub – CIMB
Calling for capital management with bond issuance?
We believe that StarHub’s planned issuance of a S$220m bond is a potential step towards a special dividend or increasing its dividend payout. This reinforces our view that StarHub is ripe for capital management given its low and rapidly-falling gearing level.
The bond issuance will be useful for Starhub given the impending spectrum auction, probably in 1H13. We maintain Outperform, with an unchanged DCF-based target price (WACC 7.9%, LTG 1.4%). StarHub remains our top Singapore telco and one of our preferred regional telco picks. This news and a further drop in gearing are key rerating catalysts.
What Happened
StarHub announced that it has priced its S$220m 10-year bond at 3.08%. This is part of its S$1bn multicurrency MTN programme. The closing date is 8 Sep 12. Proceeds will be used to finance capex and for debt refinancing.
What We Think
We think this is a step towards a special dividend or increasing its dividend payout. It reinforces our view that StarHub is ripe for capital management given its multi-year low net debt/EBITDA of 0.5x and strong FCFE. StarHub’s FY12-14 FCFE/share is S$0.22-0.29, based on our estimates and comfortably above its dividend policy of S$0.20/share.
The bond issuance will be useful given the impending spectrum auction, probably in 1H13. The regulator plans to auction off 1800MHz, 2.3GHz, and 2.5GHz spectrum for 4G service, which could cost S$138m if the auction proceeds, based on our estimates. However, telcos could walk away with the spectrum at the yet-to-be-announced reserve price if there is plenty of spectrum to go around.
What You Should Do
Remain invested in StarHub as we think this bond issuance will pave the way for StarHub to either raise its dividend payout or declare a special dividend/undertake a capital repayment. Although StarHub’s existing dividend yield of 5.6%, one of the highest among its regional peers, is already quite attractive, we assume DPS will rise to 22 cts in FY13, implying an even more impressive yield of 6.6%.
SingPost – Kim Eng
Look for higher yield elsewhere
Downgrade to HOLD. SingPost’s share price has increased by 8% in the past three months and is now close to our target price. Dividends yield has been compressed to 5.8%, below its 5-year average of 6%. We continue to believe that SingPost’s transformation efforts will benefit the company in the long term, but fail to see any short-term catalyst to boost its current price further. We maintain our target price of SGD1.10 but downgrade the stock to HOLD due to its limited upside.
Transformation impacts only the top line. We appreciate Singapore Post’s transformation effort. In recent quarters, we have started to see some positive momentum in revenue thanks to the investments that SingPost has made during the past few years. However, cost pressure is keeping bottom-line growth subdued. We expect the company’s net profit to remain on a downward trend for at least the rest of FY13.
Asset divestment is unlikely. The post offices island-wide are precious assets. However, our understanding is that SingPost does not have an incentive to monetise those assets anytime soon given its substantial net cash balance of SGD161.4m.
Wait for a better entry point. SingPost is trading at FY3/13 dividend yield of 5.8%, which is no longer attractive relative to its historical band. We recommend that investors take profit and wait for a better entry point. The near-term catalyst for this stock would be to use its cash pile to make some sizeable investments in order to speed up its transformation process.
Downside protected by dividends. SingPost has committed to paying a minimum dividend of 5 cents/share p.a.. However, we believe the group’s operating cash flow generation and recent fund raising can help maintain its dividend track record of 6.25 cents/share, which would support the share price at current level.