SPH – BT
SPH full-year net up 18% on record revenue
Higher ad sales, profits from Sky@eleven boost bottom line
A REBOUND in advertisement sales plus property profits from Sky@eleven helped drive Singapore Press Holdings’ full-year net profit 18 per cent higher to $498 million, from last year’s $422 million.
The group yesterday posted record operating revenue of $1.38 billion for the year ended Aug 31, 2010 – up 6.1 per cent from FY2009’s $1.3 billion. Recurring earnings, too, rose 8.5 per cent to a record $539 million.
Investment income was $39.3 million – a turnaround from last year’s loss of $6.2 million.
‘Overall performance this year has been a big improvement over that of the previous year,’ SPH chairman Tony Tan said at a media briefing.
The board has recommended a final dividend of 20 cents a share – comprising a normal dividend of nine cents and a special dividend of 11 cents – to be paid on Dec 23. Including the interim dividend, the total payout for FY2010 will be 27 cents a share – or 6.4 per cent based on yesterday’s closing share price of $4.22.
Fifteen estimates compiled by Bloomberg had analysts expecting SPH to announce net earnings of about $511.2 million.
Actual earnings per share came in at 31 cents, up from 26 cents a year back. Net asset value per share was $1.39 as at Aug 31, up from $1.28 a year earlier.
Revenue from the core newspaper and magazine segment grew 9.2 per cent to $974.1 million. Print ad revenue surged 13.1 per cent to $733.1 million, but circulation revenue fell $5.1 million due to fewer copies sold.
Dr Tan said: ‘The newspaper and print business is still alive and well in Singapore, and we are optimistic that this will continue to be so for some years to come.
‘But we must not be complacent and rest on our laurels, so we continue to investigate new business areas in new media, as well as in exhibitions, displays, to see what opportunities there may be, including, of course, in property development.’
Revenue from the property division fell 2.6 per cent to $356.1 million in FY2010, as higher rental income from the Paragon complex in Orchard Road was offset by a lower year-on-year contribution from Sky@eleven at Thomson. The condominium development obtained its Temporary Occupation Permit in May and final profit has now been recognised.
Total operating expenses rose due to a 19 per cent increase in staff costs resulting from a higher variable bonus provision, as newsprint costs fell 29 per cent.
Newsprint prices are expected to rise in the coming year, with SPH saying it will monitor these closely. Print advertisement revenue is expected to move in tandem with Singapore’s domestic economy. SPH chief executive Alan Chan said the economic outlook remains healthy, though worries of a double dip still linger.
In the coming year, a new mall in SPH’s portfolio is due to open in two phases between January and March. The group also expects to strengthen Sphere Exhibit’s foray into the MICE sector through new acquisitions, Mr Chan said.
SPH shares closed a cent lower at $4.22 yesterday, before its results announcement was made.
TELCOs – OCBC
No 4th Mobile Operator
No new 4th mobile operator. The IDA (Infocomm Development Authority of Singapore) has allocated Singapore’s remaining 3G cellular network spectrum (1900 – 2100 MHz) to SingTel, StarHub and M1 for S$60m, or at the reserve price of S$20m each; this after its plan to auction off that spectrum rights did not draw any other bids besides the three incumbents. We note that it was a repeat of an earlier 3G spectrum auction in 2001 where there were only bids from the three telcos. As a result, the telcos each paid the reserve price of S$100m for their 3G licenses then.
Already a saturated market. We were not surprised by the lack of interest, given that the mobile market here is already very saturated, with a penetration of 143% (Jul 2010). Additionally, we note that the three incumbents have already very well entrenched market shares, led by SingTel (~46%), StarHub (28%) and M1 (26%). As such, it would be a very uphill and expensive task for a newcomer to make a meaningful and profitable impact on the market, especially if margins are likely to be further eroded by an ensuing price competition. Having said that, we still expect mobile penetration to increase, where the proliferation of mobile computing devices such as the Apple iPad 3G will continue to drive mobile data demand.
Additional bandwidth much welcome. Hence the allocation of the additional spectrum is welcome news as the telcos will be able to expand their cellular bandwidth, thus allowing them to cope with the expected rapid growth in mobile broadband demand in the coming years. According to IT research firm Analysys Mason, it expects the total number of mobile broadband connections in developed Asia-Pacific region to increase from 6.2m in 2009 to 27.2m in 2015 (28% CAGR); it also expects mobile broadband revenue to jump 3x from US$2.4b in 2009 to US$7.1b in 2015.
Maintain OVERWEIGHT. The Singapore stock market has generally done very well over the past quarter, with the STI up 9.2% QoQ; however, further upside from here may be limited as there are questions still unanswered like the pace of the US economic recovery, the credit situation in Europe etc. As such, we maintain our OVERWEIGHT call on the telcos for their attractive dividend yields while their defensive earnings should also limit any downside risk in terms of renewed economic slowdown.
SingTel – BT
Can SingTel be a good venture capitalist?
WHEN established businesses become too expensive to buy, the next best option could be to try and snap up young ones before they turn big and successful. Punting on the next Google or Facebook has long been the game of venture capitalists but SingTel joined the table last month with the establishment of its own venture investment arm Innov8.
Armed with a $200-million war chest for the next three years, Innov8 is on the prowl for promising start-ups to complement its parent’s mobile, broadband and pay-television businesses.
Technology giants such as Intel and Google too have venture investing units but SingTel ranks among a mere handful of telcos globally to try its hand at this game. For Innov8 to be successful, however, it must be prepared to shrug off its parent’s legacy and become somewhat of a rebel child.
Like most operators, SingTel realises that the future of telcos lies not in providing ‘dumb pipes’ or carriage services but in offering intelligent applications. To get there, however, the operator cannot rely on financial muscle alone.
It must be open to working with others, pounce quickly on emerging market opportunities and think out of the box when push comes to shove.
All these would require a drastic mindset change for the once-lumbering telecommunications giant.
This is something that is arguably still new to SingTel, given its roots as a monopoly and a state-owned entity. The firm is showing signs of becoming more nimble in recent years but the evolution is still very much a work-in-progress.
With its local infrastructural stranglehold, the company has been known for being somewhat of a ‘bully’ when dealing with smaller companies in the past. It remains to be seen if this reputation will come back to haunt SingTel as it now welcomes upstarts with open arms.
Many would also argue that it takes a good entrepreneur to spot another, but SingTel has never quite seen the world from the bottom up. The challenges and difficulties of being a start-up are foreign to SingTel as it enjoyed market dominance from the word go.
Perhaps the only time SingTel had a taste of starting afresh was when it branched into the pay-television market and played second-fiddle to StarHub in 2006. Even then, the company could rely on its financial clout to force its way up, outbidding its rival to score the Barclays Premier League last year.
In the fast-moving Internet era, however, money alone does not do all the talking. The technology stars of today are mostly software companies armed with nothing more than a few computers, servers and broadband access.
These upstarts may not be as hungry for seed funding as the dot coms of yesteryear. Tools such as Facebook and Twitter, along with marketplaces such as Apple’s AppStore, have given them the ability to reach millions around the world at little or no cost.
The advent of open-source software and Web-based storage means these firms can keep operating costs to a minimum. Venture capitalists bent on courting these companies must then show they can bring something more to the table besides mere dollars and cents.
Finnish game developer Rovio, for example, achieved overnight success taking a bite at the iPhone. Its runaway hit, Angry Birds, has garnered over seven million downloads to date, lifting the outfit from the depths of obscurity to become the new million-dollar mobile sensation of today. This was achieved with only one round of funding from a hands-off angel investor.
The challenge for SingTel’s Innov8 is to find more of such companies and convince them it can resist its parent’s controlling instincts. On its part, SingTel must also give its new unit the full blessing to do so.
This is an important pre-requisite as the search for the next big thing could turn up results that are not music to SingTel’s ears.
For instance, a start-up looking into tethering, a technology which turns all smart phones into mobile broadband routers, could harm SingTel’s revenue by eliminating the need for separate 3G modem subscriptions.
Consumers would clearly welcome the technology but will SingTel see past the immediate clash of interest and invest for its long-term gain?
Innov8 must be given the full autonomy to make an independent assessment.
The risks of venture investing are inherently higher but the payoffs can also be great.
SingTel has started on the right foot by giving its new unit an apt name. Now it must back the investment by adopting an innovative mindset as well.
TELCOs – CIMB
No 3G spectrum auction
The IDA has announced that it has received a total of three applications for the 3G spectrum rights auction. As there was only one offer for each of the three lots, the IDA will allocate each lot at the reserve price of S$20m. The news is not a major surprise as we had not expected any new bidders to emerge from this process and is in fact positive as the three telcos avoided a bidding warfare and obtained the spectrum at a fairly low cost. The additional spectrum will give the telcos more capacity for mobile broadband. The cost of the spectrum should not affect dividend payouts given the telcos’ fairly solid balance sheet. We retain our UNDERWEIGHT stance on the sector as we remain perturbed over the rising content costs, pressure on fixed broadband ARPUs and escalating subsidies. M1 (OUTPERFORM, TP: S$2.60) remains the top pick for its capital management potential, most upside from NGNBN and as it benefits from the soaring inbound visitors.
The news
The IDA has received three applications from each of the three telcos who were interested in participating in the 3G spectrum rights auction. As there was only one offer for each of the three lots of 2×5 MHz, the IDA will not be conducting an auction and the 3G spectrum will be allocated to each of the incumbents at the reserve price of S$20m.
Comments
Not a surprise. As mentioned in our previous note, we had not expected any new bidders to emerge given Singapore’s small and mature market with well-established incumbents. We had also not expected any of the incumbents to go after more than one lot as the incumbents would have a total of 2×20 MHz, following this round of auction, which is more than sufficient in our view.
No bidding warfare, increased capacity. The development is on the whole positive as the three telcos avoided a bidding warfare and was able to obtain the additional spectrum at a relatively low cost of S$20m. Moreover, the three incumbents would benefit from having more real estate, ie spectrum, that would help increase the capacity for the three operators and enable them to cater for current and future growth in the mobile data and wireless broadband business. It would also enable them to plan their networks more efficiently with the additional spectrum.
No impact to dividend payouts. At the assigned price of S$20m, the spectrum cost would boost SingTel, StarHub and M1’s 2010 capex by 1%, 6% and 19% respectively. The spectrum cost should not affect the dividend payouts of the telcos given their solid balance sheet, in our view. Of the three telcos, M1 would be the most affected in terms of capex outlay given its smaller balance sheet but we do not think that this would inhibit any capital management potential there.
Valuation and recommendation
Maintain UNDERWEIGHT on the sector as we are concerned over the rising content cost, escalating subsidies and pressure on broadband ARPUs. Our top pick within the sector is M1 (OUTPERFORM, TP: S$2.60) for its capital management potential, the most upside from NGNBN and as it benefits from soaring inbound visitors.
TELCOs – BT
Talk of 4th telco dies in the air
Remaining 3G spectrum to be shared by SingTel, M1 and StarHub
The doors to a fourth local mobile operator have now closed and Singapore’s telco scene will remain a three-cornered fight among Singapore Telecommunications, M1 and StarHub.
The Infocomm Development Authority of Singapore (IDA) yesterday announced that it would allocate the country’s remaining third-generation (3G) cellular network spectrum to the three incumbent operators in the absence of other rivalling bids.
Three lots within the 1,900 to 2,100 MHz (megahertz) frequency range were supposed to go under the hammer but the regulator received only one offer each from SingTel, StarHub and M1 when the registration deadline passed on Monday.
‘No more than one initial offer was made in respect of each of the three 3G spectrum lots available for allocation. Therefore, the 3G spectrum rights (2010) auction will not take place,’ the IDA said on its website.
The latest development means that these lots will be allotted to SingTel, StarHub and M1 at the reserve price of $20 million apiece.
This is a repeat of the scenario in 2001 when the country’s 3G licences first went on sale.
Four spectrum lots were to be parcelled off then but the IDA’s auction plan was scrapped as it garnered only three bids in the end. SingTel, StarHub and M1 ended up paying the reserve price of $100 million each for their 3G licences at that time.
The fourth unclaimed spectrum is the one that IDA is now allocating to the three incumbents. The move is expected to boost their cellular bandwidth to cope with the explosive increase in mobile broadband consumption in recent years.
The smart phone boom, fuelled by handsets such as the iPhone, coupled with the growing use of token-like 3G modems, are placing a growing strain on an operator’s existing cellular network.
Besides giving current players more headroom, the government also wanted to see if a fourth player is willing to throw its hat into the ring.
While all three telcos welcomed the bandwidth boost, they protested against the IDA’s initial plan to conduct a second 3G auction.
Instead of bidding, they had lobbied for a non-competitive, ‘administrative allocation’ approach where the remaining 3G spectrum is distributed among the trio. Should there be interest beyond the current telco trinity, incumbents should be given first dibs at acquiring the spectrum, they said.
However, the IDA eventually stood its ground, arguing that an auction is a more objective and transparent way of allocating scarce national resources such as cellular network spectrums.
Last month, it also released more details of the auction. In particular, the IDA kept the door open for a fourth operator by giving foreign players a two-month buffer between tabling their initial bids and setting up a local office.
Despite the government’s best intentions, market watchers have repeatedly said that the chances of having another telco are slim as the local mobile scene is already mature and the incumbents have entrenched customer bases. Singapore did have a fourth operator once, in 2002, in the form of Virgin Mobile, a joint venture between SingTel and Richard Branson’s Virgin Group. However, it failed to make a dent in the market and the company pulled out within a year.