SingTel – BT
Proposal to raise spectrum rates sinks telco stocks
Regulator wants ten-fold rise from the controversial 2008 sale prices
The Indian telecoms regulator's proposal for a near 10-fold increase in basic mobile phone spectrum prices and switching of radio spectrum given to older carriers knocked down shares of leading operators on fears that the big potential payouts will further hurt an already bleeding industry.
Shares in top mobile operator Bharti Airtel fell as much as 7.5 per cent yesterday morning to their lowest level since July 2010, while fourth-ranked Idea Cellular fell as much as 9.8 per cent, before cutting some losses. Second-ranked Reliance Communications fell as much as 3.4 per cent.
The country's telecoms sector, the world's second-biggest by subscribers, has been battered by ferocious competition and a scandal over below-market price sale of lucrative mobile phone permits in a 2008 state sale process.
The Supreme Court has ordered 122 permits granted to eight operators in the 2008 sale be revoked in early June and asked the government to redistribute radio airwaves through an open bidding process.
SMRT – BT
SMRT to spend S$900 mln to renew, upgrade systems
Public transport operator SMRT Corp said on Tuesday it will spend S$900 million (US$720 million) on renewal and preventive maintenance to address problems that have led to numerous train breakdowns in recent months.
Most of the work will be done over the next four years, SMRT said.
"Some of the measures are already on-going and will be accelerated, while others are new," interim chief executive officer Tan Ek Kia said in a statement.
SMRT said it was discussing cost-sharing arrangements with the Land Transport Authority.
SMRT – BT
SMRT to spend S$900 mln to renew, upgrade systems
Public transport operator SMRT Corp said on Tuesday it will spend S$900 million (US$720 million) on renewal and preventive maintenance to address problems that have led to numerous train breakdowns in recent months.
Most of the work will be done over the next four years, SMRT said.
"Some of the measures are already on-going and will be accelerated, while others are new," interim chief executive officer Tan Ek Kia said in a statement.
SMRT said it was discussing cost-sharing arrangements with the Land Transport Authority.
StarHub – Kim Eng
Going for the Gold
Expect earnings to rebound in 1Q12. StarHub will report 1QFY12/12 results on 4 May. We expect net profit of SGD85m, up 8% QoQ from an adjusted SGD79m. Given its rather lazy balance sheet currently, we will be on the lookout for indications of a dividend hike in coming quarters, but even without any, the current yield is still attractive at 6.3%. Given its recent outperformance, the stock may pull back before re-rating further, but fundamentally, we maintain our BUY call with a higher target price of SGD3.50, based on the average 5.7% yield of the top 15 dividend stocks over a billion in market cap.
Margins should rebound. For one thing, we do expect margins to bounce back in 1Q12. Similar to M1, margins should recover QoQ. In 4Q11, handset subsidies pushed EBITDA margin to 30.7% (excluding capex writebacks), although the severity was much less than the other telcos. Relieved of this pressure, we expect margin to rebound toward 32% in 1Q12. Nevertheless, our full year forecast assumes a lower 31% margin, reflecting higher cost pressures in 2H12.
Mobile business should continue to outperform. In addition, mobile should grow QoQ despite lower seasonality, for a couple of reasons. One, we believe StarHub has gained market share at the higher end of the market, with its postpaid base now skewed more toward the higherend SmartSurf plans. Two, we expect data revenue to continue to benefit from higher penetration for smartphones and tablets.
Pay TV should also get a price hike kick. Last Aug, StarHub raised its Pay TV basic rate by SGD2, which stemmed the decline in Pay TV revenue that started after the loss of BPL. 1Q12 should continue to reflect this increase. However, margins may be squeezed slightly by operational costs related to cross-carriage ahead of the UEFA Euro 2012 games that will kick off in Jun 2012.
What to look out for. In particular, we would be interested in whether StarHub will utilise its currently under-utilised balance sheet to raise dividend payout this year. In 2006 and 2007, it had made two rounds of capital returns when net debt/EBITDA fell to current levels. Further, it has raised dividends every year except 2010 and 2011. Looking at its forward cashflow and capex needs, we reckon it is in a good position to increase dividends beyond SGD0.20 a share.
M1 – DBSV
Difficult to find positives except 6% yield
• 1Q12 profit slightly below expectations. Net profit of S$40m (5% y-o-y) was slightly below expectations of S$42m. Higher postpaid acquisition cost (S$363, +10% y-o-y) and lower than expected “fixed service” revenue were key culprits.
• Slow growth in new business. Fixed service revenue stood at S$11.8m versus S$10.6m in 4Q11 as M1 added 7K fiber subscribers to take its base to 29K. Long waiting time in activating broadband subscriptions continues to be a challenge.
Our Views
• Mobile trends are not encouraging. Postpaid mobile market share declined for the fourth consecutive quarter to reach 25.9% versus 26.0% in 4Q11 & 26.6% in 1Q11. While smart phone subscribers comprise 69% of its postpaid subscriber base, they do not generate higher ARPU as M1 had projected in fair value accounting for handsets. Adjusted postpaid ARPU fell 6% y-o-y to S$52.9.
• Dividends safe but capital management unlikely in 2012/13. Regulator IDA plans to auction spectrum in 1800MHz, 2.3GHz and 2.5GHz bands in 2013. Telcos should be keen to acquire these spectrums as the current use for the 1800MHz band will expire in 2017 and the remaining two bands in 2015. M1 had previously bi S$21.7m for 30 MHz block of 1800MHz spectrum in April 2011 valid for 7 years. The new spectrums auctioned will be valid for 13 15 years and therefore hold more value for telcos.
Recommendation
• HOLD for 6% dividend yield. The stock is trading at 13x FY12F PE (+1SD valuations). Among the telcos, StarHub is the most expensive at 17.5x (+2SD valuations) and 6% yield. SingTel is the cheapest at 12x (hist. average) and offers superior growth plus 5% yield, although it is in the middle of re-organization.