May 28, 2014
(Upgraded) Singapore Telcos OVERWEIGHT
Analyst All in; SingTel raised to BUY Gregory Yap . Raise sector weighting to OVERWEIGHT as we upgrade SingTel (65) 6432 1450 Singapore [email protected] to BUY. M1 remains our preferred BUY, followed by SingTel. | . M1 will enjoy stronger EPS CAGR of 8.5% over FY14E-16E, while SingTel is on the cusp of an earnings recovery of 5% EPS CAGR after three consecutive years of earnings decline. . Growth pillars: Data monetisation and falling handset subsidies, with data roaming rebound a bonus.
RESEARCH Upgrade SingTel to BUY, sector to OVERWEIGHT We upgrade SingTel to BUY with a SOTP-based TP of SGD4.35. We are now BUYers of all the three telcos, prompting us to raise the sector to OVERWEIGHT. In terms of preference, M1 remains our top
SECTOR choice, followed by SingTel which displaces StarHub to the third position. Despite challenges on the Pay TV and home broadband front, StarHub remains a BUY. We believe Si ngTel’s YTD under- performance and current low market expectations provide room
for the stock to be re-rated ahead of StarHub.
Alignment of positive trends In our view, the building blocks are fast falling in place and were evident in 1Q14 results. Data monetisation accelerated in 1Q14, driving mobile revenue to record levels with growth rate at its fastest in more than four quarters. Tiered data plan users have also hit new highs of more than 50%, and we expect 70% by year- end. Fast-falling handset subsidies are another positive trend that would benefit margins. Lastly, data roaming has finally stabilized after six quarters of Yo Y decline. The upshot: Stronger earnings growth prospects for the industry. Catalysts: (1) Data monetisation could take place faster than expected with emphasis on video content to drive data usage. Both SingTel and StarHub are developing more local content for their apps. (2) Data roaming could make a comeback on plans to make it easier to activate or even kick in automatically when users are overseas. (3) Low levels of gearing, especially for M1 and StarHub, and the absence of large capex requirements in the medium term suggest room for higher dividends ahead. Estimates & TP changes Risks: As the telcos expand the capabilities of their networks to -- FY14E EPS – --Target price – handle newer services such as VoLTE (Voice over LTE) and the (SGD) (SGD) greater demand for video content, there could be network Old New % Chg Old New % Chg
outages. Regulatory fines aside, the key risk lies in higher user M1 18.5 18.5 0.0% 3.86 4.24 10% churn owing to unstable networks. One risk particular to SingTel is SingTel 22.9 23.7 3.5% 3.60 4.35 21% an acquisition of Shin Corp as was rumoured a few months ago, StarHub 22.4 22.0 -1.9% 4.98 4.87 -2% which we would view cautiously if it materialises. Source: Maybank KE
Stock Mkt cap Rating Price TP Upside P/E (x) P/B (x) Dividend yld (%) (USD'm) (LC) (LC) (%) 14E 15E 14E 15E 14E 15E SingTel 49,245.1 Buy 3.87 4.35 12 16.9 16.3 2.6 2.5 4.3 4.6
StarHub 5,691.5 Buy 4.14 4.87 18 18.9 18.0 61.7 43.2 4.8 4.8
M1 2,572.8 Buy 3.49 4.24 21 18.8 16.9 7.9 7.3 4.2 4.7
SEE PAGE 31 FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS Co. Reg No: 198700034E MICA (P) : 099/03/2012
Singapore Telcos
Upgrade SingTel to BUY, sector to OVERWEIGHT We upgrade SingTel to BUY from HOLD. With this upgrade, we now have BUY calls on all the three telcos, prompting us to upgrade our sector weighting to an OVERWEIGHT. Our order of preference is M1, SingTel and StarHub.
• M1 (BUY, TP raised to SGD4.24) is still our preferred pick as it is the largest beneficiary of the move toward monetising the strong growth in data usage. Its mobile growth has been the strongest of the three telcos and we expect it to remain so. In addition, lower handset subsidies as well as any ARPU uplift from 4G VAS charging would be an added benefit given its smaller revenue size. In short, M1 will get more bang for the buck for every dollar of revenue. Finally, its low gearing (FY14E: 0.7x net debt/EBITDA) suggests room for larger dividend payout in the future.
• SingTel (BUY, TP raised to SGD4.35) has been upgraded to BUY and is now our second preferred telco after M1. We switch our valuation method for SingTel to SOTP framework to better reflect the underlying value of its regional associates. The change lifts our TP to SGD4.35 from SGD3.60. We believe SingTel is starting to rev up its growth engines again following the stabilisation of regional currencies. Our forecast calls for a 5% EPS growth pa in the next three years, reversing three years of earnings contraction. With rising earnings, dividends should also rise, improving yield to 5% and more over the next three years.
• StarHub (BUY, TP trimmed to SGD4.87) is still a BUY. Despite growth challenges it faces in Pay TV and home broadband (17% and 10% of service revenue respectively), we think it will perform within expectations, namely revenue growth is expected to be in the low teens, driven by mobile and fixed network services (56% and 17% of service revenue respectively) while EBITDA margin could exceed its full-year guidance of 32%. In addition, its low gearing (FY14E: 0.6x net debt/EBITDA) suggests room for higher dividend payout in the future. However, we cut our FY14E forecast by 2% on a higher tax rate. It is now our least preferred exposure. Between StarHub and SingTel, the latter appeals to us more given current low market expectations, suggesting greater scope for earnings upgrades, paving the stock to be re-rated ahead of StarHub.
May 28, 2014 2
Singapore Telcos
1Q14: Inflection point 1Q14 was a critical quarter for the Singapore telcos, as the medium- term positive trends that we highlighted last year are getting more visible, and M1, our top pick and primary beneficiary, delivered the strongest earnings growth of 5%. This was borne out in its strong earnings beat in 1Q14, while StarHub’s results were within expectations and SingTel below. The positive industry trends were: • Data monetisation gained further ground. More than half of postpaid users took up the data tiered plans with a healthy percentage exceeding basic data caps. This drove postpaid mobile revenue growth to the fastest pace in the past two years. Although IDA did not allow Starhub to raise 4G rates for existing contracts, this did not affect new & re-contracting subscribers. This will further boost mobile revenue. • Handset subsidies in freefall. The latest round of subsidies for popular handset models such as Samsung Galaxy, iPhone and HTC is the lowest ever. We expect this trend to prevail, as it is part of a global trend. This has manifested in improving margins. • Roaming revenue has finally stabilised after six quarters of YoY decline. Roaming revenue has stabilised in 1Q14, according to our coverage universe, following the launch of comprehensive roaming plans that went a long way to address ‘bill shock’ fears among consumers. On the neutral front, • Pay TV still locked in a stalemate. SingTel continued its dominance of the sports headlines with rich deals such as the World Cup. Notwithstanding, this did not seem to have affected StarHub whose subscriber numbers and ARPU remained relatively stable. This has raised doubts over the effectiveness of SingTel’s strategy. Presumably, this will work at some point but StarHub is also quietly making content moves on the side as a counterbalance. • Fixed network still held back by provisioning bottlenecks. More building owners have started to connect to the national fibre broadband network but provisioning bottleneck remains. On the brighter side, however, increased penetration into the enterprise space has also encouraged more postpaid mobile revenue from corporate users. Lastly, the following concerns showed no signs of going away. • Fixed broadband market stayed competitive. Small start-ups such as MyRepublic have gone all out with low-price bundles and even offer to buy existing contracts’ early termination charges. • Prepaid mobile did not do well. Tighter immigration policies in Singapore have continued to reduce the available pool of prepaid mobile users. In addition, even prepaid subscribers are starting to use OTT apps to communicate, dampening prepaid voice revenue.
May 28, 2014 3
Singapore Telcos
Data monetisation – Can’t stop this More than half of all postpaid users in Singapore have hopped on to tiered mobile data plans. About a year since tiered data plans were launched in Sep 2012 and unlimited plans were removed, the percentage of such users has increased dramatically in the past two quarters. This has been primarily driven by the migration to 4G from 3G. This is in-line with our expectations that 4G adoption will take place much faster than 3G. At this pace, we expect more than 70% of all postpaid users to be on tiered data plans by year-end.
Figure 1: M1 – Postpaid subscribers on tiered data plans Figure 2: StarHub - Postpaid subscribers on tiered plans M1 leads the data monetisation trend with 54% of postpaid StarHub follows close behind with 52% of postpaid subscribers subscribers on tiered plans. 8.6% of these users have exceeded on tiered plans. 9.4% of these users have exceeded basic data basic data caps and pay excess charges of SGD10.70 a month. caps and are paying excess charges of SGD8.56 a month.
(No. of subscribers) (% of postpaid base) (No. of subscribers) (% of postpaid base) 700,000 60.0% 700,000 60% 54% 52% 600,000 600,000 50.0% 46% 50%
500,000 500,000 38% 40.0% 40% 32% 400,000 400,000 30.0% 25% 30% 300,000 300,000 14% 20.0% 20% 200,000 200,000 8.6% 9.4% 10.0% 6.1% 7.4% 100,000 100,000 4.8% 10% 1.3% 2.5%
- 0.0% - 0% 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 1Q13 2Q13 3Q13 4Q13 1Q14
Subs on tiered plans Subs on tiered plans Subs that exceeded caps Subs that exceeded caps Subs on tiered, % of postpaid base (RHS) Subs on tiered, % of postpaid base (RHS) Subs that exceeded caps, % of postpaid base (RHS) Subs that exceeded caps, % of postpaid base (RHS)
Source: Company Source: Company
Figure 3: SingTel – Postpaid subscribers on tiered data plans SingTel lags the data monetisation trend with 50% of postpaid subscribers on tiered plans. 7.8% of these users have exceeded basic data caps and pay excess charges of SGD10.70 a month.
1,200,000 60% 50% 1,000,000 44% 50%
800,000 37% 40% 31% 600,000 30% 23%
400,000 17% 20%
7.8% 200,000 5.8% 10% 3.3% 4.2% 1.5% 2.3% 0 0% 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14
Subs on tiered plans Subs that exceeded caps Subs that exceeded caps, % of postpaid base (RHS) Subs on tiered, % of postpaid base (RHS)
Source: Company
May 28, 2014 4
Singapore Telcos
Mobile revenue has benefited greatly from data tiering The rising numbers of tiered plan holders have had a markedly positive effect on postpaid mobile revenue. This helps to compensate for a decline in prepaid revenue, keeping mobile revenue growth in a high single-digit territory. M1’s mobile revenue growth is the strongest of the three telcos, validating our expectation that it would be the strongest beneficiary of data monetisation. Having turned around in 1Q12, M1’s mobile growth is now hovering at an industry’s high of 5% YoY. Postpaid accounted for 88%, 82% and 83% of M1, StarHub and SingTel’s mobile revenue in 1Q 2014.
Figure 4: M1 – Mobile revenue growth Figure 5: M1 – Mobile postpaid revenue growth M1 has the highest mobile revenue growth of the three telcos… …driven by high-quality postpaid revenue growth. (SGD m) (%) (SGD'm) (%) 170 8 150 4
7 4 165 145 3 6 3 160 140 5 2 135 155 4 2 130 1 150 3 1 2 125 0 145 1 -1 120 140 -1 0 115 -2 135 -1
Total mobile revenue YoY growth (RHS) Postpaid revenue YoY growth (RHS)
Source: Company Source: Company
Figure 6: StarHub – Mobile revenue growth Figure 7: StarHub – Mobile postpaid revenue growth Mobile revenue is dampened by lower prepaid revenue… … but postpaid revenue is still doing well. (SGD'm) (%) (SGD'm) (%) 320 4 260 7 255 6 315 3 250 5 310 4 2 245 3 305 240 1 2 235 300 1 230 0 0 295 225 -1 -1 290 220 -2
285 -2 215 -3
Total mobile revenue YoY growth (RHS) Postpaid revenue YoY Growth (RHS)
Source: Company Source: Company
Figure 8: SingTel – Mobile revenue growth Figure 9: SingTel – Mobile postpaid revenue growth Mobile revenue growth has also turned around positively Postpaid growth weaker of late but holding up well (SGD m) (%) (SGD'm) (%) 550 14 460 18
16 440 450 12 14 420 10 12 350 400 10 8 250 380 8 6 6 150 360 4 4 340 2 50 2 320 0 -50 0
Total mobile revenue YoY growth (RHS) Postpaid mobile revenue YoY growth (RHS)
Source: Company Source: Company
May 28, 2014 5
Singapore Telcos
ARPUs mixed due to bundle sharing but not to worry! Of the three telcos, only M1’s postpaid ARPU has improved since 4Q12, whereas SingTel and StarHub’s ARPUs fell despite rising mobile revenue. In our view, this does not mean data monetisation is not working. Instead, we think SingTel and StarHub’s ARPUs have been affected by the popularity of bundle sharing plans, which allow primary plan users to share their voice, SMS and data bundles with additional users such as family members for a lower monthly fee. M1’s ARPU has not been affected so far as until recently, it only allowed voice and SMS bundle sharing. Figure 10: Sector – Reported mobile postpaid ARPU trend
(SGD) (SGD) 95 Tiered plans first launched 62 86 90 60 85 60 58 80 75 75 56 55 70 66 54 65 66 52 60 50 55 50 48
SingTel StarHub M1 (RHS)
Source: Companies
Case study - StarHub’s core ARPU indeed improved Our analysis of StarHub’s ARPU concludes that its core ARPU (stripped of seasonal roaming and bundle sharing effects) has benefited from data monetisation. We estimate its postpaid ARPU improved from SGD63 in Sep 2012 (when tiered plans were first launched) to SGD69 in 1Q14, although reported ARPU fell from SGD70 to SGD66 (Figure 11). First launched in 2012, the SharePlus plan became popular in 2013 after the cost was cut 20% from SGD16.05 to a promotional rate of SGD12.84. The underlying difference can be explained by an increase in supplementary users who do not pay full monthly subscriptions.
Figure 11: StarHub’s core mobile postpaid ARPU By our estimates, core ARPU rose from SGD63 to SGD69 when stripped of two effects - seasonal roaming and bundle sharing. (SGD) 74 72 72 70 70 70 69 69 68 68 69 66 66 67 64 66 64 62 63 60
58 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14
Reported postpaid ARPU excl inbound (SGD) Estimated ARPU, adjusted for seasonality & sharing plans (SGD)
Source: Company, Maybank KE
May 28, 2014 6
Singapore Telcos
Figure 12: How we derive StarHub’s core mobile postpaid ARPU 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 Reported postpaid ARPU excl inbound (SGD) 70 68 72 70 69 66 Estimated ARPU, adjusted for seasonality (SGD) 63 66 68 63 60 63 Estimated ARPU, adjusted for seasonality & 63 67 69 66 64 69 sharing plans (SGD)
How we adjusted for seasonality effect: Reported postpaid revenue (SGD) 246,100,000 241,000,000 253,900,000 248,800,000 255,800,000 252,367,500 Estimated outbound revenue (SGD) 36,915,000 19,280,000 25,390,000 29,856,000 38,370,000 20,189,400 Estimated outbound revenue 15% 8% 10% 12% 15% 8% (as % of postpaid mobile revenue) Seasonally adjusted postpaid revenue (SGD) 209,185,000 221,720,000 228,510,000 218,944,000 217,430,000 232,178,100
How we adjusted for bundle sharing effect: Reported postpaid users 1,104,000 1,113,000 1,127,000 1,151,000 1,211,000 1,229,000 Reported QoQ net-adds 18,000 9,000 14,000 24,000 60,000 18,000 Postpaid users (adjusted for sharing plans) 1,104,000 1,105,800 1,108,600 1,113,400 1,125,400 1,129,000 Estimated QoQ net-adds 18,000 1,800 2,800 4,800 12,000 3,600 (assuming 80% on sharing plans)
Source: Company, Maybank KE
4G price hike should boost ARPU StarHub’s recent attempt to charge postpaid customers a higher fee for 4G data access was frustrated by the regulator when the IDA ruled that it could only impose this fee on new or re-contracting customers, and not on customers whose contracts have yet to expire. However, the writing is on the wall. When 4G plans were first launched, they were priced the same as 3G plans because telcos were trying to get users off to move from unlimited data plans to usage-capped tiered plans. 4G is a premium value- added service (VAS) that was offered for free as a promotion, and all promotions have to end.
ARPUs and profits should get an additional boost when the promotion ends. By our estimates, M1 will be the biggest beneficiary once the 4G VAS promotion ends. For every 100,000 new customers, we estimate a 1.1% boost to FY14E net profit for M1, 0.5% for StarHub and 0.1% for SingTel. The full price for 4G access is SGD10.70/month. StarHub will start partially charging new customers SGD2.14/month for 4G access from 1 Jun 2014, while M1’s 4G promotion will end on 31 Dec 2014. SingTel did not specify an end-date, merely stating it is “offered free till a date SingTel determines”.
Figure 13: 4G VAS - Expect boost to ARPU/net profit when the VAS promotion ends M1 StarHub SingTel
For every additional 100k tiered subscribers ('000) 100 100 100 4G VAS (excluding GST)/month (SGD) 10.00 10.00 10.00 12M revenue (SGD m) 12 12 12 12M net profit - assume 16% net margin (SGD m) 2 2 2 FY13 net profit (SGD m) 160 371 3,652 Existing FY14E net profit (SGD m) 171 386 3,665 Existing YoY growth 7.0% 4.2% 0.4% New FY14E net profit (SGD m) 173 388 3,667 Incremental net profit 1.1% 0.5% 0.1% New YoY growth 8.2% 4.7% 0.4%
Source: Maybank KE
May 28, 2014 7
Singapore Telcos
Prepaid mobile – Losing its base Tighter immigration policies by the Singapore government have eroded the foreign worker base that form the biggest user base for prepaid cards, and prepaid revenue has fallen in the past 1-2 quarters. In addition, even prepaid users are starting to use OTT apps that use data to send messages or making overseas calls, eroding the SMS and voice business. We do not see this situation reversing soon.
Figure 14: Sector – Prepaid revenue trend Figure 15: Sector – Prepaid ARPU trend
(SGD m) (SGD) 100.0 24 23 90.0 80.0 22
70.0 20 60.0 18 50.0 16 16 15 40.0 16 30.0 14 13 14 20.0 12 10.0 10 0.0
SingTel StarHub M1 SingTel StarHub M1
Source: Companies Source: Companies
Fortunately, prepaid revenue only accounts for 11-18% of mobile revenue (Figure 16). The positive trends playing out on the postpaid side – data monetisation and handset subsidies – should more than compensate for the slump in prepaid revenue. In addition, the telcos are also targeting to raise data usage among prepaid users via partnerships with OTT chat apps such as WeChat, WhatsApp and LINE.
Figure 16: Sector – Mobile revenue breakdown in 1Q CY14
100% Prepaid Prepaid Prepaid 11 90% 17 18 80%
70%
60%
50% Postpaid Postpaid Postpaid 88 40% 83 83 30%
20%
10%
0% SingTel StarHub M1
Source: Companies
May 28, 2014 8
Singapore Telcos
Handset subsidies - On the wane Telcos worldwide are moving away from the carrier-subsidised model for handsets, as they can no longer afford to fund a constant smartphone upgrade cycle. Singapore is no exception. While it has taken a while to unfold, the extent of subsidy withdrawal has been significantly higher YTD compared to before, auguring well for margins.
Singapore handset subsidies in free-fall For the past two years, handset cost has been noticeably lower with the exception of quarters when there were popular handset launches. A comparison of the telcos’ latest postpaid plans and their subsidies for the popular and latest handsets models of Samsung Galaxy, iPhone and HTC indicates that handset subsidies are at the lowest ever.
Figure 17: Historical subsidy provided for popular handset models For lowest tier plans M1 SingTel StarHub Samsung Galaxy S3 550 550 550 Samsung Galaxy S4 490 490 469 Samsung Galaxy S5 380 380 369 HTC One (Gen 1) 420 440 499 HTC One (Gen 2) 320 360 329 iPhone 4 428 428 418 iPhone 4S 438 400 390 iPhone 5 508 490 475 iPhone 5S 483 480 471
Source: Companies
Twin strategies – reduce subsidies, grow data usage With smartphone penetration at over 80%, the focus has shifted from getting users onto data networks to getting them to use more of the network. When telcos were growing the business, handset subsidies were warranted to get people to use 3G data but with high penetration, the subsidy model can no longer be justified. It is hard to single out the impact on margins owing to rising data monetisation from falling handset subsidies, and in our view, such an exercise would be pointless as reducing subsidies and growing data usage should go hand in hand.
Figure 17: Smartphone vs non-smartphone penetration in Singapore (%) 100 90 80 70 60 50 40 30 20 10 0
Smartphones Non-smartphones
Source: Maybank KE
May 28, 2014 9
Singapore Telcos
Double boost for margins expected The net impact of data monetisation has been a positive one and we think this trend has legs to run. As such, we would expect margins to continue to improve just on this factor alone for at least 2014 and 2015 as more users migrate to 4G tiered data plans. The handset subsidy cuts will provide an added kicker to margins.
Figure 19: StarHub, M1 – Cost of handsets Figure 20: Sector – EBITDA margins (SGD'm) 180 160 140 120 100 80 60 40 20 0
StarHub M1
Source: Companies Source: Companies
Case study – Telefonica and its subsidy experience We studied the margin improvement that Spanish telco Telefonica experienced in 2012 after it started to remove handset subsidies in Mar 2012 and replaced them with “pay by installment” plans. Telefonica is a good case study as it was one of the first and earliest European telcos to move away from the handset subsidy system in all of the markets it operates in. Between Sep 2011 and Dec 2012, EBITDA margin rebounded from 17% to a high of 34%, and it has maintained its margin in excess of 30% since despite negative hits on revenue from the Eurozone economic slump (Figure 21). That is a difference of at least 10ppts.
Figure 18: Telefonica – Historical revenue and EBITDA margin
(Euro m) (%) 18000 45 16000 40 14000 35 12000 10000 30
8000 25 6000 Subsidies removed 20 4000 15 2000 0 10
Revenue EBITDA margin (RHS)
Source: FactSet
Margin uplift estimated at 5ppts For the Singapore telcos, we conservatively estimate the combined uplift to EBITDA margins to be in the region of 5ppts. We see 35-40% as the equilibrium for EBITDA margin in the long run, all other things being equal.
May 28, 2014 10
Singapore Telcos
Currently, M1 has the highest margins of 40% but that is partially due to its subsidy-dampening accounting treatment for iPhones. We estimate SingTel’s Singapore operations generated an EBITDA margin of ~35% in 1Q 2014 vs 32-33% for StarHub.
Roaming - Stabilised International roaming revenue has stabilized in the March 2014 quarter, according to all the telcos. This is a distinct improvement from the previous quarter when only SingTel said its roaming revenue had stabilised.
• SingTel’s Singapore mobile revenue rose 3.9% in 4QFY3/14, which the telco attributed to higher subscription and roaming revenue as well as data revenue. • StarHub said during its results briefing that international roaming revenue had stabilised after its launch of comprehensive data roaming plans in 2013 and intensive customer education on these plans. • M1 also said during its results briefing that international roaming revenue have stabilised after two years of decline.
Stabilising of roaming revenue is not so much a catalyst as it is the removal of a concern. Roaming used to account for a more significant 15-20% of overall mobile revenue but we believe they have since fallen to 10-15%, the result of lower traffic, more Wifi usage and lower inter-operator settlement rates. M1 has the least roaming revenue (10%) while SingTel has the highest (15-20%), with StarHub at about 15% on average.
Pay TV – Stable, still competitive MioTV’s subscriber growth was flat QoQ in 1Q14. This is the first quarter that SingTel has not grown its Pay TV subscribers since it launched its service in 2007. Although StarHub did not grow subscribers either, this shows that it has regained lost ground against SingTel despite its aggressive sports content strategy. It could also be read that, as a country, Pay TV is facing headwinds from alternatives such as on-net content streaming or illegal downloading. In this scenario, it will boil down to which service is more attractive in other areas such as a stable platform and local content, in which we think StarHub has the upper hand.
Fixed broadband
Corporate - Room for improvement on budget goodies In our view, corporate fibre broadband penetration has more upside, at the same time that upside will be moderated by intense competition in the retail market. Service provisioning time has improved following government penalties imposed on OpenNet, and has room to improve further. The telcos have also hedged their bets by building their own fibre links to major commercial buildings.
In addition, the 2014 budget contained initiatives that we expect to help the telcos’ corporate business with SMEs, as follows. Basically, the government will subsidise - • 50% of the monthly subscription cost of the SME’s 100Mbps plan or above for two years (capped at SGD120/month or SGD2,880 per SME),
May 28, 2014 11
Singapore Telcos
• One-time purchase of Wireless@SG equipment subsidized for SMEs who need to offer public wireless connections in the business premises (capped at SGD2,400/month), • Up to 80% of the infrastructure cost of making a building fibre-ready (capped at SGD200k per building). This should prompt building owners to connect their assets to the national fibre network.
We expect these initiatives to benefit the SME segment of the telcos’ enterprise businesses, and in particular should benefit M1, which has the smallest enterprise contribution of the Singapore telcos.
Home – Will stay competitive Competition for home fibre connections is likely to remain keen as long as players see profits to be made in locking users into long term contracts. The two main culprits behind the ARPU decline have been M1 and MyRepublic, based on our tracking of home broadband plans in the market. As more users have taken up higher speed plans, players have introduced more lower priced but higher speed plans this year. The latest round of ARPU erosion was sparked off by MyRepublic when it launched a 1Gbps plan for just SGD49.99 if users commit for two years. In response, M1 introduced a 200Mbps plan for SGD39/month for two year contracts as well. Previously, it had offered only 25Mbps for SGD39/month on a one year contract. StarHub also recently cut its 300Mbps plan from SGD59.90 to SGD49.90.
While we think this segment will remain competitive, we are not overly negative for the following reasons. • We expect the growth of the corporate fixed broadband market to be more rosy in future and this should moderate the impact from home broadband. • We think the bigger telcos are likely to stay away from rampant price cuts and focus on value bundled deals instead, such as SingTel’s entertainment bundle. • Prices are already near wholesale cost which will limit further downside, although discounts/promotions from time to time could still require a response that negatively impact short term ARPUs and profitability.
Figure 19: Residential wired broadband by speeds
Source: IDA
May 28, 2014 12
Singapore Telcos
Figure 20: Residential fibre broadband plans in the market (SGD/month) Oct-13 Jan-14 Apr-14 SingTel 200Mbps Fibre Home 49.90 49.90 49.90 SingTel 300Mbps Fibre Home 59.90 59.90 59.90 SingTel 500Mbps Fibre Home 79.90 79.90 79.90 SingTel 200Mbps Fibre Entertainment 69.90 69.90 69.90 SingTel 300Mbps Fibre Entertainment 79.90 79.90 79.90 SingTel 500Mbps Fibre Entertainment 99.00 99.00 99.00 StarHub 100Mbps Fibre Home 39.90 39.90 39.90 StarHub 200Mbps Fibre Home 49.90 49.90 n/a StarHub 300Mbps Fibre Home 59.90 59.90 49.90 StarHub 500Mbps Fibre Home n/a n/a 69.90 StarHub 1000Mbps Fibre Home 395.90 395.90 395.90 M1 25Mbps Home Fibre (12 months) 39.90 39.00 39.00 M1 100Mbps Home Fibre (12 months) 59.00 59.00 59.00 M1 200Mbps Home Fibre (12 months) 99.00 99.00 99.00 M1 1000Mbps Home Fibre (12 months) 399.00 399.00 399.00 M1 100Mbps GamePro (12 months) 65.00 65.00 65.00 M1 200Mbps Home Fibre n/a 39.00 39.00 M1 300Mbps Home Fibre n/a 49.00 49.00 M1 300Mbps GamePro n/a 55.00 55.00 SuperInternet 100Mbps Home Premium 133.75 133.75 133.75 SuperInternet 100Mbps Basic Residential 53.50 53.50 53.50 ViewQwest Fibrenet 200Mbps (No contract) 59.95 59.95 59.95 ViewQwest Fibernet 100Mbps 48.95 n/a n/a ViewQwest Fibernet 200Mbps 59.95 59.95 n/a ViewQwest Fibernet 300Mbps 65.00 65.00 65.00 ViewQwest Fibernet 500Mbps n/a 89.95 89.95 ViewQwest Fibernet 1000Mbps n/a 149.95 149.95 MyRepublic 100Mbps Pure 38.88 38.88 n/a MyRepublic 150Mbps Gamer 58.88 58.88 n/a MyRepublic 150Mbps Pure HD 46.88 48.88 n/a MyRepublic 1000Mbps Ultra n/a 49.99 49.99 MyRepublic 1000Mbps Gamer n/a 59.99 59.99
All plans are on 24 months contracts unless otherwise indicated Source: Companies, IDA
May 28, 2014 13
May 28, 2014
M1 (M1 SP)
Share Price: SGD3.49 MCap (USD): 2.6B Singapore (Unchanged) Target Price: SGD4.24(+21%) ADTV (USD): 2M Telecommunications BUY
Singapore Key Data Purest data monetisation play 52w high/low (SGD) 3.51/2.91 |
. Reiterate our BUY call on M1 with a raised DCF TP of 3m avg turnover (USDm) 2.1 SGD4.24. Remains our preferred sector pick. Free float (%) 37.6 . Blistering pace of data monetisation and falling handset Issued shares (m) 924 subsidies to benefit M1 the most. Market capitalization SGD3.2B . Catalysts: Launch of Pay TV service and another special Major shareholders: RESEARCH dividend this year. -Axiata Investments (Singapore) Ltd. 28.8% -Keppel Telecommunications & Transporta 19.4% What’s New -Singapore Press Holdings Ltd. 13.5% We reiterate our BUY call on M1. M1 is expected to be the biggest
beneficiary of data monetisation and falling handset subsidies. As a SECTOR Share Price Performance pure mobile play, it also does not have exposure to Pay TV, which 3.60 150
could be a positive when it launches its own niche TV service later 3.40 140
in the year. TP raised to SGD4.24 on faster-than-expected data 3.20 130 monetisation. 3.00 120
Delivering industry-leading trends 2.80 110 M1 leads the industry in data monetisation: 54% of postpaid base 2.60 100
on tiered plans and 8.6% of this base has busted their data caps. 2.40 90 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 This has manifested in steadily rising postpaid mobile ARPU since tiered plans were introduced. M1 boasts to have industry-leading M1 - (LHS, SGD) M1 / Straits Times Index - (RHS, %) mobile revenue growth. 1 Mth 3 Mth 12 Mth Catalysts: We believe M1 is close to breaking the threshold of Absolute(%) 5.1 3.3 7.4 10,000 subscribers it needs to introduce its own Pay TV service. Relative to index (%) 4.6 (2.9) 11.0 This will be a niche service focusing on content aggregation and will be targeted at certain demographics such as education, and Maybank vs Market will not engage in wallet-heavy content acquisition. With net Positive Neutral Negative debt/EBITDA expected to remain low, another special dividend Market Recs 16 4 3 could be on the cards. Maybank Consensus % +/- Risks: M1 paid a record SGD1.5m in fines last year due to a severe Target Price (SGD) 4.24 3.68 15.2 71-hour network outage that affected more than 250,000 '14 PATMI (SGDm) 171 174 (1.5) subscribers in Jan 2013. Another outage in 2011 lasted 14 hours '15 PATMI (SGDm) 191 183 4.2 and M1 was fined SGD300,000. Repeated network outages could Source: FactSet; Maybank lead to loss of subscribers.
FYE Dec (SGD m) FY12A FY13A FY14E FY15E FY16E Revenue 1,076.8 1,007.9 1,057.3 1,077.5 1,102.7 EBITDA 299.8 312.3 328.7 353.2 372.4 Core net profit 146.5 160.1 171.3 190.6 205.1 Core FDEPS (cts) 16.1 17.4 18.5 20.6 22.2 Core FDEPS growth(%) (10.9) 7.7 6.7 11.3 7.6 Net DPS (cts) 14.6 21.0 14.8 16.5 17.7 Core FD P/E (x) 21.7 20.1 18.8 16.9 15.7 P/BV (x) 9.2 8.1 7.9 7.3 6.7 Net dividend yield (%) 4.2 6.0 4.2 4.7 5.1 ROAE (%) 43.7 43.0 42.7 44.8 44.4 Gregory Yap ROAA (%) 15.0 16.3 17.0 18.4 19.3 (65) 6432 1450 EV/EBITDA (x) 9.1 10.3 10.5 9.7 9.2 [email protected] Net debt/equity (%) 74.8 49.3 57.2 50.0 40.4
SEE PAGE 31 FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS Co. Reg No: 198700034E MICA (P) : 099/03/2012
M 1
FYE 31 Dec FY12A FY13A FY14E FY15E FY16E Key Metrics P/E (reported) (x) 21.7 20.1 18.8 16.9 15.7 Core P/E (x) 21.7 20.1 18.8 16.9 15.7 Core FD P/E (x) 21.7 20.1 18.8 16.9 15.7 P/BV (x) 9.2 8.1 7.9 7.3 6.7 P/NTA (x) 9.4 8.4 8.1 7.4 6.8 Net dividend yield (%) 4.2 6.0 4.2 4.7 5.1 FCF yield (%) 0.6 5.5 5.9 5.8 5.7 EV/EBITDA (x) 9.1 10.3 10.5 9.7 9.2 EV/EBIT (x) 14.6 16.3 16.3 14.7 13.6
INCOME STATEMENT (SGD m) Revenue 1,076.8 1,007.9 1,057.3 1,077.5 1,102.7 Gross profit 530.2 558.7 580.5 598.0 623.0 EBITDA 299.8 312.3 328.7 353.2 372.4 Depreciation (111.0) (115.1) (116.3) (118.5) (121.3) Amortisation 0.0 0.0 0.0 0.0 0.0 EBIT 187.4 197.2 212.4 234.7 251.1 Net interest income /(exp) (4.9) (4.5) (6.0) (5.0) (4.0) Associates & JV 0.0 0.0 0.0 0.0 0.0 Exceptionals 0.0 0.0 0.0 0.0 0.0 Other pretax income 0.0 0.0 0.0 0.0 0.0 Pretax profit 183.4 192.7 206.4 229.7 247.1 Income tax (36.9) (32.6) (35.1) (39.0) (42.0) Minorities 0.0 0.0 0.0 0.0 0.0 Discontinued operations 0.0 0.0 0.0 0.0 0.0 Reported net profit 146.5 160.1 171.3 190.6 205.1 Core net profit 146.5 160.1 171.3 190.6 205.1
BALANCE SHEET (SGD m) Cash & Short Term Investments 11.6 54.5 17.6 27.9 56.1 Accounts receivable 200.9 165.4 190.3 193.9 220.5 Inventory 33.1 29.1 31.7 32.3 33.1 Property, Plant & Equip (net) 629.9 649.4 665.3 654.5 643.5 Intangible assets 98.8 87.7 127.0 130.4 133.9 Investment in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other assets 0.9 0.4 1.0 1.0 1.0 Total assets 975.1 986.5 1,032.9 1,040.1 1,088.1 ST interest bearing debt 272.0 0.0 0.0 0.0 0.0 Accounts payable 222.7 205.7 211.5 215.5 220.5 LT interest bearing debt 0.0 250.0 250.0 250.0 250.0 Other liabilities 132.5 135.7 165.0 130.0 131.0 Total Liabilities 627.2 591.4 626.5 595.5 601.5 Shareholders Equity 347.9 396.5 406.5 444.6 480.1 Minority Interest 0.0 0.0 0.0 0.0 0.0 Total shareholder equity 347.9 396.5 406.5 444.6 480.1
CASH FLOW (SGD m) Pretax profit 183.4 192.7 206.4 229.7 247.1 Depreciation & amortisation 111.0 115.1 116.3 118.5 121.3 Adj net interest (income)/exp 6.1 4.5 6.0 5.0 4.0 Change in working capital 7.6 23.7 (21.2) (0.2) (21.3) Cash taxes paid (26.5) (29.7) (25.0) (25.0) (25.0) Other operating cash flow (6.0) (4.3) 41.0 (34.5) (32.6) Cash flow from operations 274.9 302.0 323.5 293.5 293.5 Capex (122.5) (125.3) (132.2) (107.7) (110.3) Free cash flow 152.3 176.7 191.4 185.7 183.2 Dividends paid (132.2) (136.3) (193.2) (137.1) (152.5) Equity raised / (purchased) 9.9 21.5 (23.8) 0.0 1.0 Change in Debt (31.3) (22.0) 0.0 0.0 0.0 Other invest/financing cash flow 7.1 2.9 (11.2) (38.4) (3.5) Effect of exch rate changes 0.0 0.0 0.0 0.0 0.0 Net cash flow (0.2) 42.8 (36.9) 10.3 28.2
May 28, 2014 15
M 1
FYE 31 Dec FY12A FY13A FY14E FY15E FY16E Key Ratios Growth ratios (%) Revenue growth 1.1 (6.4) 4.9 1.9 2.3 EBITDA growth (3.5) 4.2 5.3 7.4 5.4 EBIT growth (6.7) 5.2 7.7 10.5 7.0 Pretax growth (7.1) 5.1 7.1 11.3 7.6 Reported net profit growth (10.7) 9.3 7.0 11.3 7.6 Core net profit growth (10.7) 9.3 7.0 11.3 7.6
Profitability ratios (%) EBITDA margin 27.8 31.0 31.1 32.8 33.8 EBIT margin 17.4 19.6 20.1 21.8 22.8 Pretax profit margin 17.0 19.1 19.5 21.3 22.4 Payout ratio 90.7 nm 79.8 79.8 79.8
DuPont analysis Net profit margin (%) 13.6 15.9 16.2 17.7 18.6 Revenue/Assets (x) 1.1 1.0 1.0 1.0 1.0 Assets/Equity (x) 2.8 2.5 2.5 2.3 2.3 ROAE (%) 43.7 43.0 42.7 44.8 44.4 ROAA (%) 15.0 16.3 17.0 18.4 19.3
Liquidity & Efficiency Cash conversion cycle (57.1) (81.3) (74.0) (72.0) (71.4) Days receivable outstanding 69.1 65.4 60.6 64.2 67.7 Days inventory outstanding 22.9 24.9 23.0 24.0 24.5 Days payables outstanding 149.0 171.7 157.5 160.3 163.6 Dividend cover (x) 1.1 0.8 1.3 1.3 1.3 Current ratio (x) 0.5 1.1 1.0 1.0 1.2
Leverage & Expense Analysis Asset/Liability (x) 1.6 1.7 1.6 1.7 1.8 Net debt/equity (%) 74.8 49.3 57.2 50.0 40.4 Net interest cover (x) 38.2 43.8 35.4 46.9 62.8 Debt/EBITDA (x) 0.9 0.8 0.8 0.7 0.7 Capex/revenue (%) 11.4 12.4 12.5 10.0 10.0 Net debt/ (net cash) 260.4 195.5 232.4 222.1 193.9
May 28, 2014 16
May 28, 2014
Singapore Telecommunications (ST SP)
Share Price: SGD3.87 MCap (USD): 49.2B Singapore (New) Target Price: SGD4.35(+12%) ADTV (USD): 46M Telecommunications BUY
Singapore Key Data Growth engines to rev up 52w high/low (SGD) 3.97/3.44 |
. Upgrade to BUY with a higher SOTP-based TP of SGD4.35 3m avg turnover (USDm) 46.3 (previously SGD3.60) as the stock is on the verge of an Free float (%) 42.4 earnings recovery. Issued shares (m) 15,944 . Earnings drivers: Strong home market and regional Market capitalization SGD61.7B associates. Major shareholders:
RESEARCH . As earnings grow, we see upside for dividends as SingTel
-Temasek Holdings 51.9% normally pays 75% of its core earnings. -Central Provident Fund 5.7% Upgraded to BUY -na na We switch our valuation method for SingTel to SOTP framework to
SECTOR Share Price Performance better reflect the underlying value of its regional associates. The 4.20 116 change lifts our TP to SGD4.35 from SGD3.60. We believe SingTel is 4.00 112 starting to rev up its growth engines. We expect a 5.5% EPS CAGR over the next three years, reversing recent three years of earnings 3.80 108 contraction. As earnings grow, dividends should also rise, improving 3.60 104 yield to 5% over the next three years. 3.40 100 3.20 96
Supported by home market and regional associates 3.00 92 Singapore operations are doing well with market share gains in May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 mobile and Pay TV. Associates are performing well (except AIS) and SingTel - (LHS, SGD) SingTel / Straits Times Index - (RHS, %) Optus is gaining 4G subscribers rapidly despite declining profits. As Optus completes its 4G network, we believe it will regain its edge 1 Mth 3 Mth 12 Mth against Telstra. Earnings growth should return beyond FY15E. Absolute(%) 3.2 6.3 (2.3) Catalysts: An earnings turnaround, driven by a strong home market Relative to index (%) 2.7 0.0 1.0
and better results from associates Bharti, Telkomsel and Globe. Maybank vs Market This would more than compensate for a dilutive effect of Digital Positive Neutral Negative Life investments and an expected EBITDA decline at Optus. Market Recs 9 15 1 Guidance for FY3/15E remains muted suggesting moderate expectations, leaving room for positive earnings surprise ahead. Maybank Consensus % +/- Target Price (SGD) 4.35 3.80 14.5 Risks: (1) A resurgent Telstra riding high on its 4G network gains '15 PATMI (SGDm) 3,779 3,786 (0.2) could prove too competitive for a more disciplined Optus. (2) An '16 PATMI (SGDm) 4,004 4,087 (2.0) acquisition of Shin Corp, as was the buzz a few months ago, could Source: FactSet; Maybank be taken cautiously by the market.
FYE Mar (SGD m) FY13A FY14A FY15E FY16E FY17E Revenue 18,183.0 16,848.0 16,872.4 16,931.4 17,081.4 EBITDA 5,200.0 5,145.0 5,161.7 5,179.4 5,224.4 Core net profit 3,508.0 3,652.0 3,778.6 4,003.6 4,234.7 Core FDEPS (cts) 21.7 22.9 23.6 25.0 26.5 Core FDEPS growth(%) (12.5) 5.3 3.4 5.9 5.7 Net DPS (cts) 16.8 16.8 17.8 18.8 19.9 Core FD P/E (x) 17.8 16.9 16.4 15.5 14.6 P/BV (x) 2.6 2.6 2.5 2.4 2.3 Net dividend yield (%) 4.3 4.3 4.6 4.9 5.2 ROAE (%) 14.8 15.3 15.5 15.8 16.1 Gregory Yap ROAA (%) 8.7 9.2 9.5 9.9 10.2 (65) 6432 1450 EV/EBITDA (x) 12.4 12.7 13.3 13.0 12.7 [email protected] Net debt/equity (%) 29.3 31.1 27.7 22.6 17.7
SEE PAGE 31 FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS Co. Reg No: 198700034E MICA (P) : 099/03/2012
S ingTel
Positives
Doing well in Singapore In addition to an expected margin improvement from declining handset subsidies and the gaining of momentum in data monetisation, SingTel is gaining market share in mobile and Pay TV. SingTel also has the upper hand in corporate fibre broadband as its extensive fibre links to many commercial buildings in the CBD. Its dominance of the SME market is giving it an edge against competitors.
1. Mobile – Catching up soon Although SingTel’s progress in converting its user base to 4G tiered plans has been slower than both M1 or StarHub, it is still proceeding at a smart pace. As of end-March, 50% of postpaid users was on tiered plans and 7.8% exceeded data caps. More importantly, SingTel is gaining market share in both postpaid and prepaid. With an expansion in subscriber base, we believe it is only a matter of time before SingTel catches up and exceeds its rivals in netting more revenue from data usage.
Figure 21: SingTel – Data monetisation in progress Conversion of subscriber base to tiered plans has lagged behind StarHub & M1 but we expect catch-up in the quarters ahead
1,200,000 60% 50% 1,000,000 44% 50%
800,000 37% 40% 31% 600,000 30% 23%
400,000 17% 20%
7.8% 200,000 5.8% 10% 3.3% 4.2% 1.5% 2.3% 0 0% 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14
Subs on tiered plans Subs that exceeded caps Subs that exceeded caps, % of postpaid base (RHS) Subs on tiered, % of postpaid base (RHS)
Source: Company
May 28, 2014 18
S ingTel
Figure 22: Sector – Postpaid market share by revenue Figure 23: Sector – Postpaid market share by subscribers SingTel has been gaining revenue market share in postpaid while its The same relative stronger growth profile can also be seen in SingTel’s rivals’ have been relatively flat market share by subscribers
44% 27% 28% 50% 29% 43% 49% 27% 28% 43% 26% 49% 48% 28% 26% 24% 42% 48% 27% 27% 22% 41% 48% 27% 27% 20% 47% 26% 40% 18% 47% 26% 39% 46% 25% 39% 46% 25% 16% 38% 46% 25% 15% 14% 15% 45% 24% 37% 12% 45% 24% 36% 10% 44% 23%
SingTel StarHub (RHS) M1 (RHS) SingTel StarHub (RHS) M1 (RHS)
Sing
Source: Companies Source: Companies
Figure 24: Sector – Prepaid market share by revenue Figure 25: Sector – Prepaid market share by subscribers SingTel’s market share gain in prepaid has been strong The same growth profile in market share by the number of subscribers
46% 35% 47% 34% 30% 45% 46% 45% 30% 46% 32% 30% 44% 28% 25% 45% 29% 30% 43% 20% 44% 28% 42% 44% 41% 15% 43% 25% 26% 41% 26% 10% 42% 24% 40% 8% 10% 39% 5% 41% 22%
38% 0% 40% 20%
SingTel StarHub (RHS) M1 (RHS) SingTel StarHub (RHS) M1 (RHS)
Source: Companies Source: Companies
Figure 26: SingTel – Postpaid revenue growth Figure 30: SingTel – Prepaid revenue growth We expect postpaid revenue growth to catch up in the quarters ahead SingTel’s prepaid revenue growth has returned to positive territory (SGD'm) (%) (SGD'm) (%) 460 18 94 6
16 440 92 4 14 420 90 2 12
400 10 88 0
380 8 86 -2 6 360 84 -4 4 340 82 -6 2
320 0 80 -8
Postpaid mobile revenue YoY growth (RHS) Prepaid mobile revenue YoY growth (RHS)
Source: Company Source: Company
2. Pay TV – Time to monetise We believe SingTel has reached critical mass in its quest for Pay TV subscribers with market share of 44% (418,000 subscribers) as of 31 Mar 2014. Although it has spent lavishly in acquiring content, the next step will be to monetise this investment through other services such as mobile and fixed broadband. We note that SingTel is the only operator at present to have bundled TV entertainment into its fibre broadband plans.
May 28, 2014 19
S ingTel
Figure 31: Sector – Pay TV market share & ARPU Figure 27: SingTel – Pay TV revenue & % of consumer revenue SingTel’s market share gains have been accompanied by rising ARPU Pay TV revenue is now a 5% of Singapore consumer revenue
(SGD/month) (SGD'm) (%) 60 100% 50 6 90% 45 50 5 80% 40 70% 35 40 4 60% 30 30 50% 25 3 40% 20 20 30% 2 15 20% 10 10 10% 1 0 0% 5 0 0
SingTel market share (%) StarHub market share (%) SingTel ARPU (SGD/mth) StarHub ARPU (SGD/mth) Pay TV revenue % of Singapore consumer revenue (RHS)
Source: Companies Source: Company
Figure 28: SingTel – Strong momentum in home services Pay TV revenue has been growing strongly, especially for customers on triple bundles. We expect this to continue in FY3/15E and FY3/16E
Source: Company
3. Corporate broadband – Incumbent advantage Despite the efforts of StarHub and M1 as well as other ISPs to dethrone SingTel, it is still the market leader in corporate broadband. Its extensive fibre links in the CBD as well as its dominance in the SME market in Singapore are hard to be duplicated by its rivals. By dint of its size especially in the area of critical telecom infrastructure, SingTel still retains a significant edge despite industry liberalisation. A recent example of this edge is reports by the media that business customers have turned to SingTel to connect them to fibre broadband because the national NBN provider OpenNet has been too slow in providing
May 28, 2014 20
S ingTel the same connections. This has angered fibre service providers such as ViewQwest, BlueTel and Verizon. Compared to OpenNet, which is required by law to connect 80% of new business sign-ups within four weeks and the balance within eight weeks, SingTel is able to do it within 15 days. This has proven acceptable for business customers despite a 20% price premium.
4. Associates – No worries except for AIS
Bharti Airtel (BUY, TP INR392): Our India telco analyst Urmil Shah has a BUY call on Bharti and a target price of INR392, on a rebound in operating performance in both India and Africa. After a period of aggressive price cuts and the demise of smaller operators, India’s mobile market has shown signs of recovery. As a result, average revenue per minute (ARPM) has improved, benefitting Bharti’s margins. From a low of 8.4% in FY3/13, group EBITDA margin rebounded to 32.5% in FY3/14 and a sustained improvement to 33.5% is expected in FY3/15E. India aside, the operations in Africa should also provide another support. In India, following 4QFY3/14 results, our analyst expects the strong performance of the Indian market to continue with rising minutes of use (MOU) and stable ARPM. In Africa, where Bharti offers mobile services in 17 countries, it has managed to stabilise the market. The operations in Africa have started to strongly generate positive cash flows. Globe Telecom (HOLD, TP PHP1,582): Our Philippines telco analyst Laura Dy-Liacco is optimistic that Globe can continue to outperform in FY14E, with revenue growth coming from strong mobile voice and data business, as well as mobile broadband and fixed line data. Although capex will remain high from its heavy investment in data, Globe is expected to start realising the positive impact of this investment this year. The Philippines market is fast moving from prepaid to postpaid, aided by smartphone adoption and usage. One factor that will add an extra fizz to this year’s growth is the ending of accelerated depreciation charges related to Globe’s data network build-out in 2013. Telkomsel: Telkomsel has a leading position in Indonesia’s telecom industry. Its annual revenue exceeds IDR60t, which is higher than the combined revenue of the second- and third-largest operators. As the biggest telco, we expect Telkomsel to capture most of the fast growing data market given its strong voice position and balance sheet strength that allows it to invest heavily in data networks. For FY14E, we expect revenue to grow in the high single digit range driven mainly by data. Advanced Info Service: AIS is not expected to do well in FY14E due to the political tensions and weak consumer sentiment in FY15. In 4QFY3/14, service revenue fell 2% YoY as lower voice revenue was affected by the weaker consumer sentiment in Thailand.
5. Digital Life – Losses to reduce this year SingTel is guiding for Digital Life investments to contribute a 50% increase in revenue and for EBITDA-level losses to reduce 20%. However, this is for existing businesses only and does not include any new investments, which may be loss-making.
May 28, 2014 21
S ingTel
Negatives
Optus – Still in investment mode On the negative side, Optus is still playing catch-up to Telstra in its 4G network investment to regain market share. In FY3/14, it lost 160,000 mobile subscribers and mobile revenue fell 4% YoY, its sixth consecutive quarter of revenue decline. Postpaid subscribers have fallen for three consecutive quarters to 5.4m subscribers, while prepaid subscribers was a bright spot with a 19% rise in 4QFY3/14 to 4m subscribers.
Figure 29: Optus – Mobile revenue & growth trend Figure 30: Optus – Mobile ARPU trend
(AUD'm) (%) (AUD/month) 1350 2 80
1300 0 70 -2 1250 60 -4 50 1200 -6 1150 -8 40
1100 -10 30 -12 1050 20 -14 10 1000 -16 950 -18 0 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14
Mobile service revenue YoY % growth (RHS) Prepaid ARPU Postpaid ARPU Blended ARPU
Source: Company Source: Company
It will take another year for the investment to be fully implemented, in our view. SingTel has guided for a higher capex of SGD2.3b in FY3/15E of which 60% or SGD1.4m is for Australia and mainly for 4G mobile network investment not including spectrum investments. This is the third year that Optus’s capex has risen. However, by FY3/16E, Optus should be in a stronger position to compete against Telstra.
On a more positive note, the investments in 4G so far appear to be working. As the network expands, so too has the subscriber base. In just a year, 4G subscriber base has risen by 2.7x from 785,000 to 2.1m in 4QFY3/13. This still lags far behind Telstra’s 4.1m but the significant rise is still encouraging.
Figure 31: Optus – Mobile subscriber net-adds on QoQ basis Figure 32: Optus – Number of mobile subscribers ('000 subs) ('000 subs) 500 6000
400 5000
300 4000
200 3000
100 2000
0 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1000 -100 0 -200 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14
QoQ net-adds - Prepaid QoQ net-adds - Postpaid QoQ net-adds - 4G Prepaid subscribers Postpaid subscribers 4G mobile subscribers
Source: Company Source: Company
May 28, 2014 22
S ingTel
Guidance
Still relatively muted but better than last year FY3/15E group revenue and EBITDA are expected to be stable, which we interpret as slightly positive growth and modelled accordingly. Its core business – group consumer and enterprise in both Singapore and Australia – is expected to show stable revenue and EBITDA growth in the low single digits. This is still relatively muted guidance, but it is an improvement over FY3/14 when it guided for mid-single-digit decline for group revenue and low single-digit decline for group EBITDA. On a slightly more positive side, SingTel also expects Digital Life investments to grow revenue by 50% in FY3/15E and for the first time, to reduce EBITDA losses by 20%. Figure 33: SingTel – Past & present guidance Group FY14 guidance Actual Revenue Decline by mid single digit level -7% EBITDA Decline by low single digit level -1% EBIT (excl associates) Decline by mid single digit level -2% Free cash flow (excl associates dividends) Approx SGD2b SGD2.2b Capital expenditure SGD2.2b SGD2.1b Ordinary dividends from regional associates To grow +17%
Group FY15E guidance Forecasted Revenue Stable +0.1% EBITDA Stable +0.3% Capital expenditure Approx SGD2.3b SGD2.36b - SGD900m for Singapore - SGD1.4b for Australia Free cashflow (excl associates dividends and spectrum payments) Stable SGD2.8b Ordinary dividends from regional associates Approx SGD1.0b SGD1.0b
Core business (Group Consumer and Enterprise) Revenue Stable SGD10.3b EBITDA Grow by low single digit level +0.3% Singapore mobile revenue Grow by mid single digit level +5% Australia mobile revenue Decline by low single digit level -10% (we are more pessimistic) Group ICT (managed services & business solutions) Grow by low single digit level +3%
Digital Life (for existing investments only) Revenue Grow approx 50% +50% EBITDA Negative EBITDA to decrease approx 20% -20%
Source: Company
May 28, 2014 23
S ingTel
Valuation
Figure 34: Sum-of-the-parts valuation NPAT Valuation Valuation Exch rate Valuation Per share % of
(SGD m) method (local crcy) (SGD/local crcy) (SGD m) (SGD) total
Subsidiaries 1,852 34,255 35,588 2.22 51% SingTel 1,296 20x PER 25,923 1.00 25,923 1.62 37% Optus 555 15x PER 8,332 1.16 9,665 0.60 14%
Stake Valuation Valuation Exch rate Valuation Per share % of (%) method (local crcy) (SGD/local crcy) (SGD m) (SGD) total Total associates & investments 33,978 2.12 49% Bharti Airtel (India) 32.4 Maybank KE 507,651 47 10,801 0.68 16% target price Telkomsel (Indonesia) 35.0 Based on 12x 9,975,000 9,500 12,600 0.79 18% FY14E forecast Globe (Philippines) 47.2 Maybank KE 99,237 35 2,835 0.18 4% target price AIS (Thailand) 23.3 Consensus 175,261 26 6,741 0.42 10% target price PBTL (Bangladesh) 45.0 Book value 14,756 62 238 0.01 0% SingPost (Singapore) 25.8 Consensus 800 1 800 0.05 1% target price
Total enterprise value 69,604 4.35 100%
Source: Maybank KE
May 28, 2014 24
S ingTel
FYE 31 Mar FY13A FY14A FY15E FY16E FY17E Key Metrics P/E (reported) (x) 17.6 17.1 16.3 15.4 14.6 Core P/E (x) 17.6 16.9 16.3 15.4 14.6 Core FD P/E (x) 17.8 16.9 16.4 15.5 14.6 P/BV (x) 2.6 2.6 2.5 2.4 2.3 P/NTA (x) 4.7 4.7 4.4 4.1 3.8 Net dividend yield (%) 4.3 4.3 4.6 4.9 5.2 FCF yield (%) 4.5 3.4 3.0 3.8 3.8 EV/EBITDA (x) 12.4 12.7 13.3 13.0 12.7 EV/EBIT (x) 22.2 22.8 22.3 21.9 21.4
INCOME STATEMENT (SGD m) Revenue 18,183.0 16,848.0 16,872.4 16,931.4 17,081.4 Gross profit 13,078.6 12,060.0 12,063.7 12,106.0 12,213.2 EBITDA 5,200.0 5,145.0 5,161.7 5,179.4 5,224.4 Depreciation (2,127.4) (2,133.0) (2,109.0) (2,116.4) (2,135.2) Amortisation 0.0 0.0 0.0 0.0 0.0 EBIT 111.6 363.0 363.1 364.0 366.2 Net interest income /(exp) (298.0) (257.0) (300.0) (300.0) (300.0) Associates & JV 2,106.0 2,201.0 2,569.3 2,875.8 3,175.2 Exceptionals (1.0) 87.0 0.0 0.0 0.0 Other pretax income 0.0 0.0 0.0 0.0 0.0 Pretax profit 4,880.0 5,043.0 5,322.0 5,638.8 5,964.4 Income tax (1,267.0) (1,428.0) (1,543.4) (1,635.3) (1,729.7) Minorities (2.3) (5.0) 0.0 0.0 0.0 Discontinued operations 0.0 0.0 0.0 0.0 0.0 Reported net profit 3,610.7 3,610.0 3,778.6 4,003.6 4,234.7 Core net profit 3,508.0 3,652.0 3,778.6 4,003.6 4,234.7
BALANCE SHEET (SGD m) Cash & Short Term Investments 911.0 623.0 1,158.0 2,176.7 3,254.3 Accounts receivable 3,680.0 3,556.0 3,627.6 3,640.3 3,672.5 Inventory 213.7 170.0 168.7 169.3 170.8 Property, Plant & Equip (net) 11,724.9 11,096.0 11,349.1 11,349.1 11,349.1 Intangible assets 10,709.4 10,740.0 10,740.0 10,740.0 10,740.0 Investment in Associates & JVs 9,886.5 10,128.0 10,160.2 10,144.2 10,129.8 Other assets 2,858.0 3,008.0 2,900.0 2,900.0 2,900.0 Total assets 39,983.5 39,321.0 40,103.6 41,119.5 42,216.5 ST interest bearing debt 391.8 814.0 825.0 825.0 825.0 Accounts payable 4,898.7 4,442.0 4,302.5 4,317.5 4,355.7 LT interest bearing debt 7,536.9 7,227.0 7,200.0 7,200.0 7,200.0 Other liabilities 3,166.9 2,948.0 2,922.5 2,922.5 2,922.5 Total Liabilities 15,994.3 15,431.0 15,250.0 15,265.0 15,303.2 Shareholders Equity 23,964.6 23,868.0 24,828.7 25,829.5 26,888.2 Minority Interest 24.6 22.0 25.0 25.0 25.0 Total shareholder equity 23,989.2 23,890.0 24,853.7 25,854.5 26,913.2
CASH FLOW (SGD m) Pretax profit 4,880.0 5,043.0 5,322.0 5,638.8 5,964.4 Depreciation & amortisation 2,127.4 2,133.0 2,109.0 2,116.4 2,135.2 Adj net interest (income)/exp 298.0 257.0 300.0 300.0 300.0 Change in working capital (91.8) (305.2) (223.3) 1.8 4.5 Cash taxes paid 0.0 0.0 0.0 0.0 0.0 Other operating cash flow 0.0 0.0 0.0 0.0 0.0 Cash flow from operations 4,824.6 4,194.1 4,188.4 4,431.2 4,478.9 Capex (2,058.6) (2,101.5) (2,362.1) (2,116.4) (2,135.2) Free cash flow 2,766.0 2,092.6 1,826.2 2,314.8 2,343.7 Dividends paid (2,517.7) (2,677.8) (2,739.0) (2,834.0) (3,002.7) Equity raised / (purchased) 1.8 0.0 16.0 0.0 0.0 Change in Debt (837.2) 205.1 (16.0) 0.0 0.0 Other invest/financing cash flow 155.1 97.9 1,456.8 1,549.9 1,751.5 Effect of exch rate changes (28.8) (28.8) (28.8) (28.8) (28.8) Net cash flow (460.8) (311.0) 515.2 1,001.9 1,063.8
May 28, 2014 25
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FYE 31 Mar FY13A FY14A FY15E FY16E FY17E Key Ratios Growth ratios (%) Revenue growth (3.4) (7.3) 0.1 0.4 0.9 EBITDA growth (0.3) (1.1) 0.3 0.3 0.9 EBIT growth 14.2 225.3 0.0 0.2 0.6 Pretax growth (1.7) 3.3 5.5 6.0 5.8 Reported net profit growth (9.4) (0.0) 4.7 6.0 5.8 Core net profit growth (4.5) 4.1 3.5 6.0 5.8
Profitability ratios (%) EBITDA margin 28.6 30.5 30.6 30.6 30.6 EBIT margin 0.6 2.2 2.2 2.1 2.1 Pretax profit margin 26.8 29.9 31.5 33.3 34.9 Payout ratio 76.3 74.1 75.0 75.0 75.0
DuPont analysis Net profit margin (%) 19.9 21.4 22.4 23.6 24.8 Revenue/Assets (x) 0.5 0.4 0.4 0.4 0.4 Assets/Equity (x) 1.7 1.6 1.6 1.6 1.6 ROAE (%) 14.8 15.3 15.5 15.8 16.1 ROAA (%) 8.7 9.2 9.5 9.9 10.2
Liquidity & Efficiency Cash conversion cycle (2.3) (2.1) (2.7) (2.1) (2.3) Days receivable outstanding 75.3 77.3 76.6 77.3 77.1 Days inventory outstanding 25.5 26.0 22.6 22.5 22.4 Days payables outstanding 108.1 105.4 101.9 101.9 101.8 Dividend cover (x) 1.3 1.3 1.3 1.3 1.3 Current ratio (x) 0.8 0.8 0.9 1.1 1.3
Leverage & Expense Analysis Asset/Liability (x) 2.5 2.5 2.6 2.7 2.8 Net debt/equity (%) 29.3 31.1 27.7 22.6 17.7 Net interest cover (x) 0.4 1.4 1.2 1.2 1.2 Debt/EBITDA (x) 1.5 1.6 1.6 1.5 1.5 Capex/revenue (%) 11.3 12.5 14.0 12.5 12.5 Net debt/ (net cash) 7,017.7 7,418.0 6,867.0 5,848.3 4,770.7
May 28, 2014 26
May 28, 2014
StarHub (STH SP)
Share Price: SGD4.14 MCap (USD): 5.7B Singapore (New) Target Price: SGD4.87(+18%) ADTV (USD): 7M Telecommunications BUY
Singapore Key Data Overcoming challenges 52w high/low (SGD) 4.49/3.95 |
. Maintain BUY on StarHub with a lowered target price of 3m avg turnover (USDm) 6.7 SGD4.87. StarHub is now our least preferred exposure. Free float (%) 32.4 . Expect data monetisation, handset subsidies, roaming and Issued shares (m) 1,722 corporate broadband to moderate challenges in Pay TV. Market capitalization SGD7.1B . Catalysts could come from better-than-expected EBITDA Major shareholders: RESEARCH margin given falling handset subsidies. -Singapore Technologies Telemedia Pte Ltd 56.4% -Nippon Telegraph & Telephone Corp. 10.0% Remains a BUY despite short-term headwinds -BlackRock Fund Advisors 0.9% Reiterate BUY with a lower TP of SGD4.87 as FY14E earnings are
SECTOR cut by 2% due to a higher tax rate. We think data monetisation, Share Price Performance falling handset subsidies, roaming and corporate broadband will 4.80 135 moderate the effects of competition in Pay TV and home 4.60 130 4.40 125 broadband. Its low net debt/EBITDA gives it room to increase 4.20 120
dividends next year. 4.00 115
3.80 110
Our least preferred telco pick 3.60 105 Despite the growth challenges in Pay TV and home broadband (17% 3.40 100 3.20 95 and 10% of service revenue respectively) due to competition from May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 SingTel in Pay TV and M1 and MyRepublic in home broadband, we StarHub - (LHS, SGD) StarHub / Straits Times Index - (RHS, %) think StarHub will perform within expectations. Revenue growth is expected to be in low teens, driven by mobile and fixed network 1 Mth 3 Mth 12 Mth services (56% and 17% of service revenue respectively). Absolute(%) 0.0 (1.0) (2.8) Catalysts: (1) We think EBITDA margin could exceed StarHub’s full- Relative to index (%) (0.5) (6.8) 0.4 year guidance of 32% given falling handset subsidies. (2) By our estimates, core postpaid ARPU in fact improved after stripping out Maybank vs Market the dilutive effect of the bundle sharing promotion. Once the Positive Neutral Negative promotion ends, reported ARPU should improve. (3) StarHub’s Market Recs 5 13 4 continued low gearing (FY14E: 0.6x net debt/EBITDA) suggests Maybank Consensus % +/- room for higher dividend payouts in the future. Target Price (SGD) 4.87 4.15 17.3 Risks: (1) The likelihood of a more intense-than-expected '14 PATMI (SGDm) 377 373 1.0 competition in home broadband, forcing StarHub to respond '15 PATMI (SGDm) 394 400 (1.5) aggressively to protect its market share. (2) Greater-than- Source: FactSet; Maybank
expected hollowing-out of foreign worker base, prompting more bundled promotions, reducing ARPU.
FYE Dec (SGD m) FY12A FY13A FY14E FY15E FY16E Revenue 2,421.6 2,359.3 2,410.7 2,456.9 2,506.8 EBITDA 719.8 732.7 758.2 784.3 807.1 Core net profit 359.3 370.7 377.0 393.8 407.7 Core FDEPS (cts) 20.8 21.4 21.9 22.8 23.6 Core FDEPS growth(%) 14.5 2.9 1.9 4.5 3.5 Net DPS (cts) 20.0 20.0 20.0 20.0 20.0 Core FD P/E (x) 19.9 19.3 18.9 18.1 17.5 P/BV (x) 163.4 86.2 61.7 43.2 31.2 Net dividend yield (%) 4.8 4.8 4.8 4.8 4.8 ROAE (%) nm 587.5 378.6 277.9 204.6 Gregory Yap ROAA (%) 20.3 20.3 20.5 21.1 21.0 (65) 6432 1450 EV/EBITDA (x) 9.6 10.7 10.0 9.6 9.2 [email protected] Net debt/equity (%) nm nm 422.9 249.2 139.1
SEE PAGE 31 FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS Co. Reg No: 198700034E MICA (P) : 099/03/2012
S tarHub
FYE 31 Dec FY12A FY13A FY14E FY15E FY16E Key Metrics P/E (reported) (x) 19.8 19.2 18.9 18.0 17.4 Core P/E (x) 19.8 19.2 18.9 18.0 17.4 Core FD P/E (x) 19.9 19.3 18.9 18.1 17.5 P/BV (x) 163.4 86.2 61.7 43.2 31.2 P/NTA (x) (20.1) (24.2) (25.3) (26.2) (28.6) Net dividend yield (%) 4.8 4.8 4.8 4.8 4.8 FCF yield (%) 5.6 4.7 5.0 6.8 7.1 EV/EBITDA (x) 9.6 10.7 10.0 9.6 9.2 EV/EBIT (x) 15.4 16.9 15.8 14.9 14.2
INCOME STATEMENT (SGD m) Revenue 2,421.6 2,359.3 2,410.7 2,456.9 2,506.8 Gross profit 1,410.7 1,417.8 1,470.5 1,503.6 1,541.7 EBITDA 719.8 732.7 758.2 784.3 807.1 Depreciation (272.5) (269.5) (277.2) (282.5) (288.3) Amortisation 0.0 0.0 1.0 2.0 3.0 EBIT 447.3 463.2 482.0 503.7 521.8 Net interest income /(exp) (15.9) (16.0) (15.5) (15.5) (15.5) Associates & JV 0.0 0.0 0.0 0.0 0.0 Exceptionals 0.0 0.0 0.0 0.0 0.0 Other pretax income na 0.0 0.0 0.0 0.0 Pretax profit 431.4 447.2 466.5 488.2 506.3 Income tax (72.1) (76.5) (88.4) (92.4) (95.6) Minorities 0.0 0.0 0.0 0.0 0.0 Discontinued operations 0.0 0.0 0.0 0.0 0.0 Reported net profit 359.3 370.7 377.0 393.8 407.7 Core net profit 359.3 370.7 377.0 393.8 407.7
BALANCE SHEET (SGD m) Cash & Short Term Investments 312.0 266.9 206.7 283.8 377.2 Accounts receivable 154.9 277.9 289.3 294.8 300.8 Inventory 28.1 43.2 36.2 36.9 37.6 Property, Plant & Equip (net) 791.1 857.4 875.8 824.6 771.9 Intangible assets 397.0 380.6 400.0 440.0 480.0 Investment in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other assets 125.5 24.0 20.0 21.0 23.0 Total assets 1,808.6 1,850.0 1,827.9 1,901.1 1,990.6 ST interest bearing debt 0.0 0.0 0.0 0.0 0.0 Accounts payable 728.1 753.7 723.2 737.1 752.1 LT interest bearing debt 687.5 716.4 695.0 695.0 695.0 Other liabilities 307.8 297.2 287.0 289.0 291.0 Total Liabilities 1,723.4 1,767.3 1,705.2 1,721.1 1,738.1 Shareholders Equity 43.5 82.7 115.5 165.0 228.4 Minority Interest 0.0 0.0 1.0 2.0 3.0 Total shareholder equity 43.5 82.7 116.5 167.0 231.4
CASH FLOW (SGD m) Pretax profit 431.4 447.2 466.5 488.2 506.3 Depreciation & amortisation 272.5 269.5 276.2 280.5 285.3 Adj net interest (income)/exp 19.9 16.0 15.5 15.5 15.5 Change in working capital 42.0 (7.2) (38.7) 6.6 7.2 Cash taxes paid 54.0 (89.0) (70.0) (75.0) (74.0) Other operating cash flow (72.3) 0.0 0.0 0.0 0.0 Cash flow from operations 673.6 636.5 649.5 715.9 740.4 Capex (272.7) (302.8) (295.6) (231.3) (235.6) Free cash flow 400.9 333.7 353.8 484.6 504.7 Dividends paid (343.4) (344.2) (344.3) (344.3) (344.3) Equity raised / (purchased) (0.6) 0.8 0.0 0.0 0.0 Change in Debt (195.0) 0.0 (21.4) 0.0 0.0 Other invest/financing cash flow 71.4 6.4 18.5 (75.4) (83.8) Effect of exch rate changes 0.0 0.0 0.0 0.0 1.0 Net cash flow 132.8 (3.3) 6.7 64.9 77.7
May 28, 2014 28
S tarHub
FYE 31 Dec FY12A FY13A FY14E FY15E FY16E Key Ratios Growth ratios (%) Revenue growth 4.7 (2.6) 2.2 1.9 2.0 EBITDA growth 6.5 1.8 3.5 3.4 2.9 EBIT growth 12.3 3.6 4.1 4.5 3.6 Pretax growth 13.6 3.7 4.3 4.7 3.7 Reported net profit growth 13.9 3.2 1.7 4.5 3.5 Core net profit growth 13.9 3.2 1.7 4.5 3.5
Profitability ratios (%) EBITDA margin 29.7 31.1 31.5 31.9 32.2 EBIT margin 18.5 19.6 20.0 20.5 20.8 Pretax profit margin 17.8 19.0 19.4 19.9 20.2 Payout ratio 95.7 92.8 91.1 87.2 84.2
DuPont analysis Net profit margin (%) 14.8 15.7 15.6 16.0 16.3 Revenue/Assets (x) 1.3 1.3 1.3 1.3 1.3 Assets/Equity (x) 41.6 22.4 15.8 11.5 8.7 ROAE (%) 1087.5 587.5 378.6 277.9 204.6 ROAA (%) 20.3 20.3 20.5 21.1 21.0
Liquidity & Efficiency Cash conversion cycle (215.8) (236.6) (225.2) (219.2) (221.1) Days receivable outstanding 27.4 33.0 42.3 42.8 42.8 Days inventory outstanding 11.6 13.6 15.2 13.8 13.9 Days payables outstanding 254.8 283.3 282.8 275.7 277.7 Dividend cover (x) 1.0 1.1 1.1 1.1 1.2 Current ratio (x) 0.7 0.7 0.6 0.7 0.8
Leverage & Expense Analysis Asset/Liability (x) 1.0 1.0 1.1 1.1 1.1 Net debt/equity (%) 949.4 543.5 422.9 249.2 139.1 Net interest cover (x) 28.1 29.0 31.1 32.5 33.7 Debt/EBITDA (x) 1.0 1.0 0.9 0.9 0.9 Capex/revenue (%) 11.3 12.8 12.3 9.4 9.4 Net debt/ (net cash) 375.5 449.5 488.3 411.2 317.8
May 28, 2014 29
S ingapore Telcos
Research Offices
REGIONAL HONG KONG / CHINA INDONESIA Surachai PRAMUALCHAROENKIT (66) 2658 6300 ext 1470 WONG Chew Hann, CA Howard WONG Head of Research Wilianto IE Head of Research [email protected] Regional Head of Institutional Research (852) 2268 0648 (62) 21 2557 1125 • Auto • Conmat • Contractor • Steel (603) 2297 8686 [email protected] [email protected] [email protected] • Oil & Gas - Regional • Strategy Suttatip PEERASUB ONG Seng Yeow Alexander LATZER Rahmi MARINA (66) 2658 6300 ext 1430 Regional Head of Retail Research (852) 2268 0647 (62) 21 2557 1128 [email protected] • Media • Commerce (65) 6432 1453 [email protected] [email protected] [email protected] • Metals & Mining - Regional • Banking & Finance Sutthichai KUMWORACHAI Alexander GARTHOFF Jacqueline KO, CFA Aurellia SETIABUDI (66) 2658 6300 ext 1400 Institutional Product Manager (852) 2268 0633 [email protected] (62) 21 2953 0785 [email protected] (852) 2268 0638 • Consumer [email protected] • Energy • Petrochem • Property [email protected] Karen KWAN Termporn TANTIVIVAT (852) 2268 0640 [email protected] Anthony YUNUS (66) 2658 6300 ext 1520 ECONOMICS • Property & REITs (62) 21 2557 1136 [email protected] [email protected] • Property Suhaimi ILIAS Osbert TK TANG, CFA • Consumer • Poultry Chief Economist (86) 21 5096 8370 Singapore | Malaysia [email protected] Isnaputra ISKANDAR Woraphon WIROONSRI (603) 2297 8682 • Transport & Industrials (62) 21 2557 1129 (66) 2658 6300 ext 1560 [email protected] [email protected] [email protected] Ricky WK NG, CFA • Metals & Mining • Cement • Banking & Finance (852) 2268 0689 [email protected] Luz LORENZO • Utilities & Renewable Energy Pandu ANUGRAH Jaroonpan WATTANAWONG Philippines (62) 21 2557 1137 (66) 2658 6300 ext 1404 (63) 2 849 8836 Simon QIAN, CFA [email protected] [email protected] [email protected] (852) 2268 0634 • Infrastructure • Construction • Transport [email protected] • Transportation • Small cap Tim LEELAHAPHAN • Telecom & Internet Janni ASMAN Chatchai JINDARAT Thailand (62) 21 2953 0784 Steven ST CHAN [email protected] (66) 2658 6300 ext 1401 (662) 658 1420 [email protected] (852) 2268 0645 [email protected] • Cigarette • Healthcare • Retail [email protected] • Banking & Financials - Regional • Electronics JUNIMAN PHILIPPINES Chief Economist, BII Warren LAU VIETNAM Indonesia (852) 2268 0644 Luz LORENZO Head of Research LE Hong Lien, ACCA (62) 21 29228888 ext 29682 [email protected] (63) 2 849 8836 • Technology – Regional [email protected] Head of Institutional Research [email protected] • Strategy (84) 844 55 58 88 x 8181 William YANG [email protected] Josua PARDEDE (852) 2268 0675 Laura DY-LIACCO • Strategy • Consumer • Diversified • Utilities Economist / Industry Analyst, BII [email protected] (63) 2 849 8840 Indonesia • Technology – Regional [email protected] THAI Quang Trung, CFA, Deputy Manager, (62) 21 29228888 ext 29695 • Utilities • Conglomerates • Telcos Institutional Research [email protected] INDIA (84) 844 55 58 88 x 8180 Lovell SARREAL [email protected] Jigar SHAH Head of Research (63) 2 849 8841 • Real Estate • Construction • Materials MALAYSIA (91) 22 6623 2601 [email protected] WONG Chew Hann, CA Head of Research [email protected] • Consumer • Media • Cement Le Nguyen Nhat Chuyen (603) 2297 8686 [email protected] • Oil & Gas • Automobile • Cement (84) 844 55 58 88 x 8082 Rommel RODRIGO • Strategy • Construction & Infrastructure [email protected] Anubhav GUPTA (63) 2 849 8839 • Oil & Gas [email protected] Desmond CH’NG, ACA (91) 22 6623 2605 • Conglomerates • Property • Gaming (603) 2297 8680 NGUYEN Thi Ngan Tuyen, Head of Retail Research [email protected] • Ports/ Logistics [email protected] (84) 8 44 555 888 x 8081 • Metal & Mining • Capital Goods • Property • Banking & Finance [email protected] Katherine TAN • Food & Beverage • Oil&Gas • Banking Urmil SHAH (63) 2 849 8843 LIAW Thong Jung (91) 22 6623 2606 [email protected] [email protected] (603) 2297 8688 [email protected] NGUYEN Trung Hoa, Dy Head of Retail Research • Technology • Media • Banks • Construction • Oil & Gas - Regional • Shipping (84) 8 44 555 888 x 8088 [email protected] SINGAPORE Ramon ADVIENTO ONG Chee Ting, CA (63) 2 849 8845 • Macro • Steel • Real estate (603) 2297 8678 [email protected] NG Wee Siang Head of Research [email protected] • Plantations - Regional (65) 6432 1467 [email protected] • Mining TRINH Thi Ngoc Diep • Banking & Finance (84) 4 44 555 888 x 8208 Mohshin AZIZ THAILAND [email protected] (603) 2297 8692 [email protected] Gregory YAP • Technology • Utilities • Construction • Aviation - Regional • Petrochem (65) 6432 1450 [email protected] Maria LAPIZ Head of Institutional Research Dir (66) 2257 0250 | (66) 2658 6300 ext 1399 • SMID Caps – Regional TRUONG Quang Binh YIN Shao Yang, CPA • Technology & Manufacturing • Tel co s [email protected] (603) 2297 8916 [email protected] • Consumer / Materials (84) 4 44 555 888 x 8087 • Gaming – Regional • Media Wilson LIEW [email protected] • Rubber plantation • Tyres and Tubes • Oil&Gas (65) 6432 1454 [email protected] Jesada TECHAHUSDIN, CFA TAN Chi Wei, C FA • Property Developers (66) 2658 6300 ext 1394 (603) 2297 8690 [email protected] [email protected] PHAM Nhat Bich • Power • Telcos ONG Kian Lin • Financial Services (84) 8 44 555 888 x 8083 (65) 6432 1470 [email protected] [email protected] WONG Wei Sum, C FA • S-R E I Ts • Consumer • Manufacturing • Fishery (603) 2297 8679 [email protected] Kittisorn PRUITIPAT, CFA, FRM James KOH (66) 2658 6300 ext 1395 • Property & REITs NGUYEN Thi Sony Tra Mi (65) 6432 1431 [email protected] [email protected] (84) 8 44 555 888 x 8084 LEE Yen Ling • Consumer - Regional • Real Estate [email protected] (603) 2297 8691 [email protected] • Port operation • Pharmaceutical • Building Materials • Glove Producers YEAK Chee Keong, CFA Sittichai DUANGRATTANACHAYA • Food & Beverage (65) 6432 1460 (66) 2658 6300 ext 1393 CHAI Li Shin [email protected] [email protected] (603) 2297 8684 [email protected] • Offshore & Marine • Services Sector • Plantation • Construction & Infrastructure Derrick HENG KANG Chun Ee (65) 6432 1446 [email protected] Sukit UDOMSIRIKUL Head of Retail Research (603) 2297 8675 [email protected] • Transport (Land, Shipping & Aviation) (66) 2658 6300 ext 5090 • Consumer [email protected] WEI Bin Ivan YAP (65) 6432 1455 [email protected] Mayuree CHOWVIKRAN (603) 2297 8612 [email protected] • Commodity • Logistics • S-chips (66) 2658 6300 ext 1440 • Automotive [email protected] John CHEONG • Strategy LEE Cheng Hooi Regional Chartist (65) 6432 1461 [email protected] (603) 2297 8694 • Small & Mid Caps • Healthcare [email protected] Padon VANNARAT TRUONG Thanh Hang (66) 2658 6300 ext 1450 Tee Sze Chiah Head of Retail Research (65) 6432 1451 [email protected] [email protected] (603) 2297 6858 [email protected] • Small & Mid Caps • Strategy
May 28, 2014 30
S ingapore Telcos
APPENDIX I: TERMS FOR PROVISION OF REPORT, DISCLAIMERS AND DISCLOSURES
DISCLAIMERS This research report is prepared for general circulation and for information purposes only and under no circumstances should it be considered or intended as an offer to sell or a solicitation of an offer to buy the securities referred to herein. Investors should note that values of such securities, if any, may fluctuate and that each security’s price or value may rise or fall. Opinions or recommendations contained herein are in form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from the relevant jurisdiction’s stock exchange in the equity analysis. Accordingly, investors’ returns may be less than the original sum invested. Past performance is not necessarily a guide to future performance. This report is not intended to provide personal investment advice and does not take into account the specific investment objectives, the financial situation and the particular needs of persons who may receive or read this report. Investors should therefore seek financial, legal and other advice regarding the appropriateness of investing in any securities or the investment strategies discussed or recommended in this report. The information contained herein has been obtained from sources believed to be reliable but such sources have not been independently verified by Maybank Investment Bank Berhad, its subsidiary and affiliates (collectively, “MKE”) and consequently no representation is made as to the accuracy or completeness of this report by MKE and it should not be relied upon as such. Accordingly, MKE and its officers, directors, associates, connected parties and/or employees (collectively, “Representatives”) shall not be liable for any direct, indirect or consequential losses or damages that may arise from the use or reliance of this report. Any information, opinions or recommendations contained herein are subject to change at any time, without prior notice. This report may contain forward looking statements which are often but not always identified by the use of words such as “anticipate”, “believe”, “estimate”, “intend”, “plan”, “expect”, “forecast”, “predict” and “project” and statements that an event or result “may”, “will”, “can”, “should”, “could” or “might” occur or be achieved and other similar expressions. Such forward looking statements are based on assumptions made and information currently available to us and are subject to certain risks and uncertainties that could cause the actual results to differ materially from those expressed in any forward looking statements. Readers are cautioned not to place undue relevance on these forward-looking statements. MKE expressly disclaims any obligation to update or revise any such forward looking statements to reflect new information, events or circumstances after the date of this publication or to reflect the occurrence of unanticipated events. MKE and its officers, directors and employees, including persons involved in the preparation or issuance of this report, may, to the extent permitted by law, from time to time participate or invest in financing transactions with the issuer(s) of the securities mentioned in this report, perform services for or solicit business from such issuers, and/or have a position or holding, or other material interest, or effect transactions, in such securities or options thereon, or other investments related thereto. In addition, it may make markets in the securities mentioned in the material presented in this report. MKE may, to the extent permitted by law, act upon or use the information presented herein, or the research or analysis on which they are based, before the material is published. One or more directors, officers and/or employees of MKE may be a director of the issuers of the securities mentioned in this report. This report is prepared for the use of MKE’s clients and may not be reproduced, altered in any way, transmitted to, copied or distributed to any other party in whole or in part in any form or manner without the prior express written consent of MKE and MKE and its Representatives accepts no liability whatsoever for the actions of third parties in this respect. This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. This report is for distribution only under such circumstances as may be permitted by applicable law. The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. Without prejudice to the foregoing, the reader is to note that additional disclaimers, warnings or qualifications may apply based on geographical location of the person or entity receiving this report. Malaysia Opinions or recommendations contained herein are in the form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from Bursa Malaysia Securities Berhad in the equity analysis. Singapore This report has been produced as of the date hereof and the information herein may be subject to change. Maybank Kim Eng Research Pte. Ltd. (“Maybank KERPL”) in Singapore has no obligation to update such information for any recipient. For distribution in Singapore, recipients of this report are to contact Maybank KERPL in Singapore in respect of any matters arising from, or in connection with, this report. If the recipient of this report is not an accredited investor, expert investor or institutional investor (as defined under Section 4A of the Singapore Securities and Futures Act), Maybank KERPL shall be legally liable for the contents of this report, with such liability being limited to the extent (if any) as permitted by law. Thailand The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information. The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey may be changed after that date. Maybank Kim Eng Securities (Thailand) Public Company Limited (“MBKET”) does not confirm nor certify the accuracy of such survey result. Except as specifically permitted, no part of this presentation may be reproduced or distributed in any manner without the prior written permission of MBKET. MBKET accepts no liability whatsoever for the actions of third parties in this respect. US This research report prepared by MKE is distributed in the United States (“US”) to Major US Institutional Investors (as defined in Rule 15a-6 under the Securities Exchange Act of 1934, as amended) only by Maybank Kim Eng Securities USA Inc (“Maybank KESUSA”), a broker-dealer registered in the US (registered under Section 15 of the Securities Exchange Act of 1934, as amended). All responsibility for the distribution of this report by Maybank KESUSA in the US shall be borne by Maybank KESUSA. All resulting transactions by a US person or entity should be effected through a registered broker-dealer in the US. This report is not directed at you if MKE is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to you. You should satisfy yourself before reading it that Maybank KESUSA is permitted to provide research material concerning investments to you under relevant legislation and regulations. UK This document is being distributed by Maybank Kim Eng Securities (London) Ltd (“Maybank KESL”) which is authorized and regulated, by the Financial Services Authority and is for Informational Purposes only. This document is not intended for distribution to anyone defined as a Retail Client under the Financial Services and Markets Act 2000 within the UK. Any inclusion of a third party link is for the recipients convenience only, and that the firm does not take any responsibility for its comments or accuracy, and that access to such links is at the individuals own risk. Nothing in this report should be considered as constituting legal, accounting or tax advice, and that for accurate guidance recipients should consult with their own independent tax advisers.
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DISCLOSURES Legal Entities Disclosures Malaysia: This report is issued and distributed in Malaysia by Maybank Investment Bank Berhad (15938-H) which is a Participating Organization of Bursa Malaysia Berhad and a holder of Capital Markets and Services License issued by the Securities Commission in Malaysia. Singapore: This material is issued and distributed in Singapore by Maybank KERPL (Co. Reg No 197201256N) which is regulated by the Monetary Authority of Singapore. Indonesia: PT Kim Eng Securities (“PTKES”) (Reg. No. KEP-251/PM/1992) is a member of the Indonesia Stock Exchange and is regulated by the BAPEPAM LK. Thailand: MBKET (Reg. No.0107545000314) is a member of the Stock Exchange of Thailand and is regulated by the Ministry of Finance and the Securities and Exchange Commission. Philippines: Maybank ATRKES (Reg. No.01-2004-00019) is a member of the Philippines Stock Exchange and is regulated by the Securities and Exchange Commission. Vietnam: Maybank Kim Eng Securities JSC (License Number: 71/UBCK-GP) is licensed under the State Securities Commission of Vietnam.Hong Kong: KESHK (Central Entity No AAD284) is regulated by the Securities and Futures Commission. India: Kim Eng Securities India Private Limited (“KESI”) is a participant of the National Stock Exchange of India Limited (Reg No: INF/INB 231452435) and the Bombay Stock Exchange (Reg. No. INF/INB 011452431) and is regulated by Securities and Exchange Board of India. KESI is also registered with SEBI as Category 1 Merchant Banker (Reg. No. INM 000011708) US: Maybank KESUSA is a member of/ and is authorized and regulated by the FINRA – Broker ID 27861. UK: Maybank KESL (Reg No 2377538) is authorized and regulated by the Financial Services Authority.
Disclosure of Interest Malaysia: MKE and its Representatives may from time to time have positions or be materially interested in the securities referred to herein and may further act as market maker or may have assumed an underwriting commitment or deal with such securities and may also perform or seek to perform investment banking services, advisory and other services for or relating to those companies.
Singapore: As of 28 May 2014, Maybank KERPL and the covering analyst do not have any interest in any companies recommended in this research report.
Thailand: MBKET may have a business relationship with or may possibly be an issuer of derivative warrants on the securities /companies mentioned in the research report. Therefore, Investors should exercise their own judgment before making any investment decisions. MBKET, its associates, directors, connected parties and/or employees may from time to time have interests and/or underwriting commitments in the securities mentioned in this report.
Hong Kong: KESHK may have financial interests in relation to an issuer or a new listing applicant referred to as defined by the requirements under Paragraph 16.5(a) of the Hong Kong Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission.
As of 28 May 2014, KESHK and the authoring analyst do not have any interest in any companies recommended in this research report.
MKE may have, within the last three years, served as manager or co-manager of a public offering of securities for, or currently may make a primary market in issues of, any or all of the entities mentioned in this report or may be providing, or have provided within the previous 12 months, significant advice or investment services in relation to the investment concerned or a related investment and may receive compensation for the services provided from the companies covered in this report.
OTHERS Analyst Certification of Independence The views expressed in this research report accurately reflect the analyst’s personal views about any and all of the subject securities or issuers; and no part of the research analyst’s compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in the report.
Reminder Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct its own analysis of the product and consult with its own professional advisers as to the risks involved in making such a purchase.
No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior consent of MKE.
Ong Seng Yeow | Executive Director, Maybank Kim Eng Research
Definition of Ratings Maybank Kim Eng Research uses the following rating system BUY Return is expected to be above 10% in the next 12 months (excluding dividends) HOLD Return is expected to be between - 10% to +10% in the next 12 months (excluding dividends) SELL Return is expected to be below -10% in the next 12 months (excluding dividends)
Applicability of Ratings The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies.
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