SGX Yield Stock

Beefing up digital ad capability

• Paying USD359m for Adconian and Kontera to beef up the capability of Amobee in digital advertising market.
  
• While marginally EBITDA dilutive in the short term, the acquisitions could help Amobee to break even earlier.
  
• Our BUY case of growth resumption starting FY3/15E stays intact. Maintain BUY with a SOTP TP of SGD4.35.
  

What’s New

SingTel is pressing ahead into the adjacent digital mobile advertising space with its subsidiary Amobee paying USD359m for Adconian (for USD209m) and Kontera Technologies (USD150m). We expect the acquisitions to be neutral for SingTel. The acquisitions will be EBITDA-dilutive in the short term but they are in line with market expectations given that SingTel had, up until now, only used a fraction of the SGD2b budgeted for Digital Life investments. Maintain BUY, TP SGD4.35.

What’s Our View

This development will transform Amobee from a mere digital advertising company operating on a single channel/screen into an all-rounded mobile-led digital marketing company that provides advertising & data analytics solutions on multiple channels/screens on a real-time basis. This makes sense, as the market has evolved since 2012 when SingTel first bought Amobee.

Notwithstanding the short-term EBITDA dilution, Digital Life investments were never about short term returns. Revenue and profit targets aside, the investee companies’ bigger objective is to enable the operating companies to better compete via more advanced technology.

With the standalone investee companies aiming to break even in 3-5 years, there is a good chance that Adconian and Kontera will accelerate the process for Amobee. Adconian will triple Amobee’s existing salesforce and both sides will have additional services and solutions to sell, while the new capabilities brought by Kontera will open up new markets for Amobee.

Beefing up digital ad capability

• Paying USD359m for Adconian and Kontera to beef up the capability of Amobee in digital advertising market.
  
• While marginally EBITDA dilutive in the short term, the acquisitions could help Amobee to break even earlier.
  
• Our BUY case of growth resumption starting FY3/15E stays intact. Maintain BUY with a SOTP TP of SGD4.35.
  

What’s New

SingTel is pressing ahead into the adjacent digital mobile advertising space with its subsidiary Amobee paying USD359m for Adconian (for USD209m) and Kontera Technologies (USD150m). We expect the acquisitions to be neutral for SingTel. The acquisitions will be EBITDA-dilutive in the short term but they are in line with market expectations given that SingTel had, up until now, only used a fraction of the SGD2b budgeted for Digital Life investments. Maintain BUY, TP SGD4.35.

What’s Our View

This development will transform Amobee from a mere digital advertising company operating on a single channel/screen into an all-rounded mobile-led digital marketing company that provides advertising & data analytics solutions on multiple channels/screens on a real-time basis. This makes sense, as the market has evolved since 2012 when SingTel first bought Amobee.

Notwithstanding the short-term EBITDA dilution, Digital Life investments were never about short term returns. Revenue and profit targets aside, the investee companies’ bigger objective is to enable the operating companies to better compete via more advanced technology.

With the standalone investee companies aiming to break even in 3-5 years, there is a good chance that Adconian and Kontera will accelerate the process for Amobee. Adconian will triple Amobee’s existing salesforce and both sides will have additional services and solutions to sell, while the new capabilities brought by Kontera will open up new markets for Amobee.

A more exciting year ahead

• SingTel’s Investor Day 2014 affirms our view that growth will restart this year. Reiterate BUY, TP SGD4.35.
  
• 82% of our SOTP valuation is expected to record growth in FY3/15E, up from just 34% in FY3/14.
  
• Digital investments starting to bear results, auguring well for the group. Dividend is expected to stay intact.
  

Investor Day affirms positive view

SingTel held its annual Investor Day last week. Following a whole day of meetings with all their operating companies, we walked away feeling reassured. Maintain BUY with a SOTP TP of SGD4.35.

The right ingredients are falling in place

By our estimates, 82% of SingTel’s SOTP valuation will be in growth mode this year vs just 34% a year before. This will be driven by: 1) Singapore whose growth will be driven by the adoption of 4G and the monetisation of Pay TV, and 2) all associates, except AIS, are expected to perform well on the back of rising data usage amid benign conditions. With regional currencies expected to be more stable, growth at associates, especially Bharti, should strengthen this year.

Elsewhere, Optus plans to aggressively regain market share, while the Digital Life initiatives, launched in 2012, are already enabling SingTel companies to better compete. While AIS may cut guidance but it is not large enough to affect the overall growth trajectory.

Digital Life investments will not harm dividends

Lastly, Group Digital Life CEO Allen Lew took pains to emphasise that (1) the SGD2b allocated for non-telco investments is in line with global benchmarks, (2) investee companies are already proving their worth in giving SingTel group companies an edge in the market place, and (3) financial discipline will be maintained and dividends will stay intact.

A more exciting year ahead

• SingTel’s Investor Day 2014 affirms our view that growth will restart this year. Reiterate BUY, TP SGD4.35.
  
• 82% of our SOTP valuation is expected to record growth in FY3/15E, up from just 34% in FY3/14.
  
• Digital investments starting to bear results, auguring well for the group. Dividend is expected to stay intact.
  

Investor Day affirms positive view

SingTel held its annual Investor Day last week. Following a whole day of meetings with all their operating companies, we walked away feeling reassured. Maintain BUY with a SOTP TP of SGD4.35.

The right ingredients are falling in place

By our estimates, 82% of SingTel’s SOTP valuation will be in growth mode this year vs just 34% a year before. This will be driven by: 1) Singapore whose growth will be driven by the adoption of 4G and the monetisation of Pay TV, and 2) all associates, except AIS, are expected to perform well on the back of rising data usage amid benign conditions. With regional currencies expected to be more stable, growth at associates, especially Bharti, should strengthen this year.

Elsewhere, Optus plans to aggressively regain market share, while the Digital Life initiatives, launched in 2012, are already enabling SingTel companies to better compete. While AIS may cut guidance but it is not large enough to affect the overall growth trajectory.

Digital Life investments will not harm dividends

Lastly, Group Digital Life CEO Allen Lew took pains to emphasise that (1) the SGD2b allocated for non-telco investments is in line with global benchmarks, (2) investee companies are already proving their worth in giving SingTel group companies an edge in the market place, and (3) financial discipline will be maintained and dividends will stay intact.

Optus new price plans target high value mobile data users

Optus has updated its mobile data plans including shared data across up to five devices. It has increased low-end sim-only plans by A$5 but lowered the key A$65 plan to A$60 and extended data allowance from 2.0GB to 5.0GB. We think its intention is to win more share in this key data usage bracket. We think these developments help set the company up through FY15 for FY16.

What Happened

Optus has updated its My Plan Plus mobile plans with significant increases in data allowances, higher included voice minutes and adjustments to pricing. However, at A$30 per month (sim only) for 0.5GB, Optus’s entry level price is A$15 below Telstra’s entry level price; each across up to five devices. In the key A$60 bracket it offers much more value than comparable Telstra packages. Optus offers data usage across up to five devices on the same data plan (‘bucket plans’); Telstra has a similar offer but with a A$10 monthly charge per device. VHA has no shared data plans at this point.

What We Think

We think the changes represent a significant statement of intent by Optus to increase mobile subscriber share in the higher value segment. Its expansion of network capacity offers it the opportunity to include greater allowances to win back customers and it has priced to this advantage. Notably, in the key 5.0GB shared service plan, Optus has substantially undercut Telstra both in device charges and the amount of data offered.

What You Should Do

We see competitive pressure in the Australian mobile market increasing through FY15, slowing industry mobile service revenue (MSR) growth. We think MSR is likely to pick up from FY16 with growing use of devices, M2M and data usage. Although we think Optus will do well to hold the network differential between it and Telstra at current levels through FY15, we expect it will be in a stronger position to win back share at the premium end of the mobile subscriber market by FY16. We continue to like SingTel as an investment and retain our Add rating and SOP-based S$4.10 target price. Key risks are mobile competition in Australia from Telstra and VHA and Optus’ execution of its network rollout.