STEng – Phillip
Another Growth Engine
Company Overview
ST Engineering (STE) is an integrated engineering group with exposures to four key business segments: Aerospace, Marine, Electronics and Land Systems. The company is also an anchor customer of Singapore’s defence industry.
• US$49.7mn for certain assets of Pemco
• 320k sqm of space, 1.4mn manhours of capacity, 2 hangars
• B737 freighter conversion certificates acquired
• 16% increase in Group capacity
• Maintain Accumulate with unchanged TP of S$3.37
What is the news?
STE announced the acquisition of certain assets of Pemco as part of a bankruptcy proceeding. STE’s US arm VT Aerospace would assume liabilities of US$6.2mn and pay a consideration of US$49.7mn for the Tampa facility and certain assets of PEMCO. The acquisition is contingent upon the approval by the US Bankruptcy Court and is expected to be completed in July 2012. The facility occupies 320k sqm of hangar and office space at Tampa International Airport in Florida and is seen as a gateway to Latin America. STE would also acquire the Boeing B737 freighter conversion Supplemental Type Certificates from Pemco in this deal.
How do we view this?
We view this development positively as it would further extend STE’s lead as the world’s largest MRO player. This deal would increase STE’s heavy maintenance capacity by 16% and increase its exposure to the fast growing Latin American region. While it is difficult to judge as to whether STE overpaid for the assets due to the lack of financial disclosures, bankruptcy proceedings usually throw up assets at a reasonable price.
Investment Actions?
We kept our forecasts unchanged and maintain our Accumulate rating on STE. STE’s earning yield spreads and P/E multiples remain below historical averages, reflecting undervaluation in this defensive stock, in our view.
TELCOs – Kim Eng
SingTel Crimps The Data Pipe Further
Step forward for telcos. SingTel’s decision to cut data caps for smartphones is a big step toward better data monetisation opportunities for Singapore telcos. That said, the short-term impact will be minimal as the majority of 3G data users do not exceed 2GB of data a month. Over time however, it will encourage more data usage, especially on the video front, and this should lead users to adopt LTE as well as upgrade their plans, thus benefiting the telcos’ data revenue and margins. We retain our BUY calls on StarHub and M1, and SELL on SingTel.
SingTel reins in generous data caps. SingTel’s new 4G plans were significant not because it is the first telco to launch 4G smartphone plans, but because it has slashed data caps for both its 3G and 4G plans. From a two-tiered 12GB and 30GB (although not unlimited, these caps were still very generous), SingTel now offers four tiers of 2GB, 3GB, 4GB and 12GB. Monthly subscription prices have remained the same but SingTel has also increased the number of bundled SMS.
StarHub and M1 likely to follow suit. Now that the giant has stepped forward to lead the way, the other telcos are likely to follow. According to the media, StarHub will soon cut its single-tier 12GB smartphone and iPhone plans to tiers of 1GB, 2GB and 5GB to match its Multi-SIM plans for tablets and mobile phones. Similarly with M1, although it has said it will only unveil its plans in 2H12. Also, we think both smaller telcos will take the opportunity to do away with their unlimited plans.
Churn could rise in rush to lock in larger data caps. SingTel’s churn rate could rise in 3Q12, as its out-of-contract subscribers may switch to the other two telcos to lock in their still-generous data caps for another two years. This is especially so if StarHub and M1 hold off on dumping their higher data caps for a couple more months. We reckon this is probably why StarHub warned it would also be cutting caps soon but provided no other details.
Gradual adoption. The decision to cut down on data caps should be positive for ARPUs further out but the short-term impact will likely be minimal as the majority of data users do not exceed 2GB of data a month. Over time, more 4G handsets will become available, and the faster speeds will encourage more data usage and prompt users to upgrade their plans, thus benefiting data revenue. Higher adoption of tablets will also drive more data usage. More importantly, data margins will also benefit.
Prefer StarHub and M1 to SingTel. This development does not change our calls, which stand at BUY on StarHub and M1 and SELL on SingTel. We still like StarHub and M1 for their attractive yields of about 6%. In fact, StarHub’s yield could get more attractive as we believe its balance sheet can support a higher regular dividend. While the cut in data caps will benefit its domestic business, SingTel faces significant risks from overseas, particularly on the currency and regulatory fronts.
TELCOs – Kim Eng
SingTel Crimps The Data Pipe Further
Step forward for telcos. SingTel’s decision to cut data caps for smartphones is a big step toward better data monetisation opportunities for Singapore telcos. That said, the short-term impact will be minimal as the majority of 3G data users do not exceed 2GB of data a month. Over time however, it will encourage more data usage, especially on the video front, and this should lead users to adopt LTE as well as upgrade their plans, thus benefiting the telcos’ data revenue and margins. We retain our BUY calls on StarHub and M1, and SELL on SingTel.
SingTel reins in generous data caps. SingTel’s new 4G plans were significant not because it is the first telco to launch 4G smartphone plans, but because it has slashed data caps for both its 3G and 4G plans. From a two-tiered 12GB and 30GB (although not unlimited, these caps were still very generous), SingTel now offers four tiers of 2GB, 3GB, 4GB and 12GB. Monthly subscription prices have remained the same but SingTel has also increased the number of bundled SMS.
StarHub and M1 likely to follow suit. Now that the giant has stepped forward to lead the way, the other telcos are likely to follow. According to the media, StarHub will soon cut its single-tier 12GB smartphone and iPhone plans to tiers of 1GB, 2GB and 5GB to match its Multi-SIM plans for tablets and mobile phones. Similarly with M1, although it has said it will only unveil its plans in 2H12. Also, we think both smaller telcos will take the opportunity to do away with their unlimited plans.
Churn could rise in rush to lock in larger data caps. SingTel’s churn rate could rise in 3Q12, as its out-of-contract subscribers may switch to the other two telcos to lock in their still-generous data caps for another two years. This is especially so if StarHub and M1 hold off on dumping their higher data caps for a couple more months. We reckon this is probably why StarHub warned it would also be cutting caps soon but provided no other details.
Gradual adoption. The decision to cut down on data caps should be positive for ARPUs further out but the short-term impact will likely be minimal as the majority of data users do not exceed 2GB of data a month. Over time, more 4G handsets will become available, and the faster speeds will encourage more data usage and prompt users to upgrade their plans, thus benefiting data revenue. Higher adoption of tablets will also drive more data usage. More importantly, data margins will also benefit.
Prefer StarHub and M1 to SingTel. This development does not change our calls, which stand at BUY on StarHub and M1 and SELL on SingTel. We still like StarHub and M1 for their attractive yields of about 6%. In fact, StarHub’s yield could get more attractive as we believe its balance sheet can support a higher regular dividend. While the cut in data caps will benefit its domestic business, SingTel faces significant risks from overseas, particularly on the currency and regulatory fronts.
Starhub – BT
Singapore telecommunications company StarHub Limited announced on Thursday the official launch of TV Anywhere, an internet TV platform giving viewers access to cable TV channels across Internet-enabled PC, Mac, iPad or tablet, with their current subscription plan.
Currently in its beta phase, starhubtv.com will allow cable TV customers to access up to 12 channels, depending on their subscription plan. In addition, starhubtv.com will offer more than 600 hours of content on its on-demand video store and a full TV guide. Selected local content such as LionsXII and S.League matches will also be available free of charge.
“The increase in ownership of multiple personal devices among Singaporeans and the demand for entertainment content on the go gives us the opportunity to extend our TV offering for an anytime, anywhere experience," said Iris Wee, vice-president of Home Solutions & Content, StarHub.
"As the platform is still in its beta phase, we would like to assure customers that we are working with our content partners to have more rights cleared for delivery over the Internet as soon as possible. We hope to triple the number of channels available by the end of this year,” she added.
SingTel – CIMB
Dialling back data bundles and launching LTE for smartphones
SingTel’s rebundling of smartphone plans to reduce data quota is not a surprise given its aim to monetise data. Though it is throwing in more SMS, this is unlikely to resonate with users given the waning usage in favour of data messaging. It also launched LTE for smartphones.
Given the lack of catalysts, SingTel remains a Neutral with an SOP-based target price of S$3.36.While we are concerned about the falling regional currencies, share price downside should be ringfenced by its modest dividend yield of 4-5%. StarHub remains our top Singapore telco pick.
What Happened
SingTel is refreshing its smartphone plansbybundling1) less data. It now offers between 2GB and 12GB of data vs.a flat 12GB across all plans previously, and 2) 25% to 45% more SMS. Figure 1 overleaf summarises the plans. SingTel also launched an LTE service for smartphones, the first telco in Singapore to do so. It has made available three LTE handsets: HTC One XL, LG Optimus LTE and Samsung Galaxy S2 LTE.
What We Think
This is a step in the right direction but earnings impact is minimal. We take a positive view of SingTel’s lower data bundle but are not surprised as the telco has said that it wanted to better monetise the rising data usage. SingTel noted that 90%of users do not use more than 2GB/month, which means that it is only able to monetise 10% immediately. Nonetheless, ARPUs for these LTE users should be higher than for3G plans. Also, as usage rises over time, more users will be compelled to upgrade their plan. Singtel is bundling more SMS but this is unlikely to resonate with users given the waning usage in favour of data messaging. Under its new plans, SingTel now bundles more SMS but substantially less data than its rivals, as shown in Figures 2 to 4.
LTE take-up will be gradual and will improve when more handsets with better battery life become available.
What You Should Do
Switch to StarHub for its more attractive dividends of >6% which have upside potential given its low net debt/EBITDA of 0.5x.SingTel’s overseas units, which contribute 75% of its earnings, risk being diluted by weaker regional currencies.