StarHub – DBSV
Market is pricing 21 Scts DPS
• StarHub might report 2Q12F earnings of S$95m, up 23% y-o-y and 12% ahead of market expectations.
• Annual savings of S$20m due to the absence of EPL rights might disappear going forward.
• FY12F/13F raised 4% each, TP raised to S$3.50 as we switch to DDM with expectations of 21 Scts annual DPS. Maintain HOLD.
2Q12F earnings likely to be ahead of market expectations. In mid-August, we expect StarHub to report 2Q12F earnings of S$95m (23% y-o-y & 8% q-o-q). This should be 12% ahead of consensus expectations of S$85m on the back of the increasing popularity of Android phones which need lower subsidies than iPhones. 2Q12F includes the Euro Cup matches, however, and we expect the Euro Cup to be neutral to slightly negative. We have conservatively raised our FY12F/13F earnings by 4% each as the potential launch of iPhone5 could hurt earnings in the 4Q12F.
Two possible scenarios for English Premier League rights in September 2012. Neither one of the players has an incentive to bid higher for exclusive rights due to cross-carriage regulations. There are two possibilities here depending on what is acceptable to the Premier League. (i) Both players place a common joint-bid; (ii) Each player bids on a non-exclusive basis in order to avoid cross-carriage. In either case, each player has to incur some cost of owning the content rights. We estimate that StarHub has benefitted S$20m annually due to the absence of EPL costs and these benefits could disappear going forward.
Maintain HOLD with higher TP of S$3.50. We switch from DCF to DDM assuming 8% cost of equity, 2% long-term growth rate and 21 Scts DPS. With net debt to EBITDA of 0.5x, lowest amongst three telcos, StarHub could possibly raise regular dividends slightly. Management has ruled out special dividends though, given the EPL bidding ahead and the spectrum auction in 2013.
SATS – DMG
More passengers; stable cargo volume
Unit services handled grew QoQ. Unit services handled in 1QFY13 was 6.7% more than 4QFY12. This was largely due to an increase in services provided to larger aircraft. This was likely driven by an increase in travel to further destinations such as Europe during the June holiday season, where the route is usually undertaken by larger aircrafts. The increase in unit services handled is also contributed by a greater number of flights handled (+1.5% QoQ, +7.2% YoY) during the quarter.
Cargo volume stable despite weak demand. Cargo volume declined 5.2% YoY, due to economic slowdown in the US and Europe. Compared with the previous quarter, cargo volumes grew slightly by 2.1%. We think demand in the cargo segment is likely to remain weak, on the back of a weak global economy.
Passenger traffic still healthy. Passengers handled increased 3.6% QoQ (9.0% YoY), to cross the 10.0m mark for the first time, likely due to the holiday season and more passengers taking short and frequent trips on LCCs. With healthy passenger traffic at Changi, we estimate that SATS’ Airport Services division (ground handling services and cargo) would record flat YoY revenue growth, while growth in its Food Solutions segment would be helped by improvement in TFK.
Maintain NEUTRAL. SATS had announced a special dividend of 15 S¢/share for 4QFY12 (total dividend for FY12: 26 S¢/share), which is payable on 15 Aug 12. We like SATS’ steady dividends, supported by a strong balance sheet (net cash: 28.3 S¢/share). Currently, SATS is trading cum-dividend, at 16.7x P/E (average 14.5x P/E). The ICT has commenced operations, but positive contribution is only likely in FY14. Maintain NEUTRAL, with DCF-based TP of S$2.57.
SATS – DMG
More passengers; stable cargo volume
Unit services handled grew QoQ. Unit services handled in 1QFY13 was 6.7% more than 4QFY12. This was largely due to an increase in services provided to larger aircraft. This was likely driven by an increase in travel to further destinations such as Europe during the June holiday season, where the route is usually undertaken by larger aircrafts. The increase in unit services handled is also contributed by a greater number of flights handled (+1.5% QoQ, +7.2% YoY) during the quarter.
Cargo volume stable despite weak demand. Cargo volume declined 5.2% YoY, due to economic slowdown in the US and Europe. Compared with the previous quarter, cargo volumes grew slightly by 2.1%. We think demand in the cargo segment is likely to remain weak, on the back of a weak global economy.
Passenger traffic still healthy. Passengers handled increased 3.6% QoQ (9.0% YoY), to cross the 10.0m mark for the first time, likely due to the holiday season and more passengers taking short and frequent trips on LCCs. With healthy passenger traffic at Changi, we estimate that SATS’ Airport Services division (ground handling services and cargo) would record flat YoY revenue growth, while growth in its Food Solutions segment would be helped by improvement in TFK.
Maintain NEUTRAL. SATS had announced a special dividend of 15 S¢/share for 4QFY12 (total dividend for FY12: 26 S¢/share), which is payable on 15 Aug 12. We like SATS’ steady dividends, supported by a strong balance sheet (net cash: 28.3 S¢/share). Currently, SATS is trading cum-dividend, at 16.7x P/E (average 14.5x P/E). The ICT has commenced operations, but positive contribution is only likely in FY14. Maintain NEUTRAL, with DCF-based TP of S$2.57.
M1 – DMG
1HFY12 Results Review note
M1 surprised on the downside with 1HFY12 results that missed the street and our estimates, no thanks to the accounting treatment for Android handsets, which clobbered EBITDA margin. Management has maintained its dividend payout ratio of 80% of earnings, which would imply a lower absolute payout for FY12 given the pressure on earnings. We cut our FY12/13 forecasts by 9%-12% post results to err on the conservative and downgrade the stock to NEUTRAL, with a revised DCF FV of SGD2.66. We are also moderating our DPS assumption for FY12 to 14 cents/share.
Below forecasts. M1’s core earnings, when annualized, were 12%-16% below our and consensus estimates. The key disappointment came from an accounting anomaly in the treatment of Android handsets which deviated from the usual fair value accounting it adopts for the iPhone (amortization over the life of the contract). M1 expensed upfront the cost of Android smartphones, which made up 70% of all smartphones sold in 2Q12. This hammered margins even as the subsidies on the models fell, as evident from the decline in subscriber acquisition cost (-12% q-o-q). The telco estimates that 25% of its total base comprises Android handsets versus 50% for the Apple iPhone.
IDD, fixed services revenue down q-o-q. To our surprise, service revenue contracted 0.7% q-o-q (+1% y-o-y), dragged down by weak IDD revenue (-7% q-o-q) and fixed services revenue (-4.2% qo-q). M1 said IDD sales were hit by the lower roaming revenue after Singapore and Malaysia signed a reciprocal agreement to lower roaming tariffs in 2011. Despite booking in another SGD7m in wholesale cost to expand its fiber footprint, its fixed service revenue was still down sequentially as there was a one-off sale of fixed equipment in 1Q12. M1 netted 7k fiber subs in 1Q12 to 37k, which translates into a fiber market share of some 21%-23% based on management’s estimate.
Tiered data plans by September. M1 said it will introduce tiered data plans when its LTE service goes nationwide in 3Q12 but did not provide any details. Both M1 and StarHub have yet to respond to Singtel’s earlier move to lower its data caps.
Dividend payout may be at risk. While M1 kept its dividend payout guidance at 80% of earnings, it would appear that the absolute dividend for FY12 could potentially be lower due to the earnings impact arising from the accounting mismatch. Management was unable to provide guidance on whether this impact would stretch into 2H2012. We cut our FY12 and FY13 core earnings forecasts to SGD156.8m and SGD187.7m respectively from SGD177.4m and SGD206.8m previously to build in mid-term earnings pressure from the upfront expenses relating to Android handsets. Our DPS estimate is cut accordingly, although M1’s dividend yield is still a decent 5%, which should provide some share price support.
M1 – DMG
1HFY12 Results Review note
M1 surprised on the downside with 1HFY12 results that missed the street and our estimates, no thanks to the accounting treatment for Android handsets, which clobbered EBITDA margin. Management has maintained its dividend payout ratio of 80% of earnings, which would imply a lower absolute payout for FY12 given the pressure on earnings. We cut our FY12/13 forecasts by 9%-12% post results to err on the conservative and downgrade the stock to NEUTRAL, with a revised DCF FV of SGD2.66. We are also moderating our DPS assumption for FY12 to 14 cents/share.
Below forecasts. M1’s core earnings, when annualized, were 12%-16% below our and consensus estimates. The key disappointment came from an accounting anomaly in the treatment of Android handsets which deviated from the usual fair value accounting it adopts for the iPhone (amortization over the life of the contract). M1 expensed upfront the cost of Android smartphones, which made up 70% of all smartphones sold in 2Q12. This hammered margins even as the subsidies on the models fell, as evident from the decline in subscriber acquisition cost (-12% q-o-q). The telco estimates that 25% of its total base comprises Android handsets versus 50% for the Apple iPhone.
IDD, fixed services revenue down q-o-q. To our surprise, service revenue contracted 0.7% q-o-q (+1% y-o-y), dragged down by weak IDD revenue (-7% q-o-q) and fixed services revenue (-4.2% qo-q). M1 said IDD sales were hit by the lower roaming revenue after Singapore and Malaysia signed a reciprocal agreement to lower roaming tariffs in 2011. Despite booking in another SGD7m in wholesale cost to expand its fiber footprint, its fixed service revenue was still down sequentially as there was a one-off sale of fixed equipment in 1Q12. M1 netted 7k fiber subs in 1Q12 to 37k, which translates into a fiber market share of some 21%-23% based on management’s estimate.
Tiered data plans by September. M1 said it will introduce tiered data plans when its LTE service goes nationwide in 3Q12 but did not provide any details. Both M1 and StarHub have yet to respond to Singtel’s earlier move to lower its data caps.
Dividend payout may be at risk. While M1 kept its dividend payout guidance at 80% of earnings, it would appear that the absolute dividend for FY12 could potentially be lower due to the earnings impact arising from the accounting mismatch. Management was unable to provide guidance on whether this impact would stretch into 2H2012. We cut our FY12 and FY13 core earnings forecasts to SGD156.8m and SGD187.7m respectively from SGD177.4m and SGD206.8m previously to build in mid-term earnings pressure from the upfront expenses relating to Android handsets. Our DPS estimate is cut accordingly, although M1’s dividend yield is still a decent 5%, which should provide some share price support.