Sector Overview

The Telecommunications Sector under our coverage consists of SingTel, StarHub & M1. StarHub (STH) and M1 are pure plays to the Singapore market, while SingTel (ST) has exposure to the Asia-Pacific region through its regional mobile associates.

• StarHub and  M1  reported  gains  in  FY13  net  profit,  up  3%  and  9%  y-y respectively; SingTel reported 4%y-y gain in 9MFY14 net profit.
• For  the  last  quarter,  ST and  M1  reported  6%  and  7%  y-y  gains  respectively while 4Q13 net profit for STH was down 5% y-y, due to deferred tax in 4Q12.
• Dividend yields of > 4% from Telcos remain attractive.
• Maintain "Accumulate" for STH and M1.  Downgraded ST to "Neutral"  (report 14 th Feb) over concern on Optus business outlook.
• We continue to like M1 as our preferred pick among the 3 Telco stocks.

Singapore(SG)

1. Mobile

• Higher revenue YTDDec-13, ondata monetising and increasingsubscribers.
• More customers on 4G tiered plansand exceeding data allowances.

2. Pay TV

• Positive net adds for both ST and STH.
• STH Pay TV revenue up 2% y-y in 4Q13 on higher ARPU.

3. Broadband

• Price competition continues with attractive promotions from smaller players.
• ST and STH reported decline in revenue; M1 continuesto gain from low base.
• Continued growth in fibre broadband subscriptions.

ST Optus

• Increased earnings on higher EBITDA margin, attributedto effective cost mgt.
• Lower revenue on declining mobile revenue and weakening AUD against SGD.
• Mobile subscriber base declining across both pre-paid and post-paid.

ST Regional Associates

• Growth in pre-tax earnings contribution continues, despite FX impact.
• Airtel reported improved earnings on strong data momentum in India.

Positive Outlook on Telcos

We  remain  cautiously  positive  on  the  sector  as  the  Telcos continue  to  provide attractive  dividend  yields  and  stable  earnings  growth.  Data  monetization  will continue  to  drive  earnings  growth  ahead.  We  expect  data  monetizing in  SG  to continue gaining good traction inFY2014.

SingTel continues  to  deliver  moderate  earnings  growth  despite  adverse  FX movements and lower Optus revenue, due to improved margins on effective cost management. However, we have concerns over  business outlook  forOptuswhich operates in a challengingenvironmentthat is dominated by Telstra in Australia.

M1 continues to be our preferred top pick, as we think it standto benefitmost on improving mobile dynamics in SG. M1 proposed special dividends of 7.1 Scents per share, which would contribute to total dividend yield of over6% for FY13.

Overall,  we  think  the  Telcos  continue  to  be  attractive  investments,  providing earnings as well as dividends growth potentials.

Source: Phillip Securities Research - 10 Mar 2014