• All largely in line
• Outlook still muted
• Yields are bit more decent

StarHub missed our forecast

Both M1 and SingTel reported 4QCY13 results that came in within our expectations, while StarHub’s results tracked below forecast. M1’s core FY13 earnings was 3.5% above our full-year forecast and SingTel’s 9MFY14 earnings met 73% of our FY14 estimate. But due to lower-than-expected EBITDA margin, StarHub’s core FY13 earnings was 5% below our forecast. Interestingly, M1 declared a special dividend, which brought its total payout to 121% of earnings; StarHub kept its payout at S$0.20 as guided.

Review of Singapore mobile operations

Total post-paid mobile subscribers grew by a stronger-than-expected 2% QoQ to 4.53m in the Dec quarter, led by StarHub (+5.2%), SingTel (+1.1%), then M1 (+0.4%). Meanwhile, the decline in monthly ARPUs appears to be stabilizing; and telcos are optimistic that ARPUs should improve as more subscribers switch over to the new tiered pricing plans with less generous data bundles.

Little change to FY14 outlook

M1 continues to expect moderate single-digit earnings growth, although capex will be slightly higher at S$130m (versus S$125m in FY13). SingTel still sees mid-single digit decline in group revenue and low-single digit fall in EBITDA for FY14 (ending 31 Mar); but expects lower S$2.2b capex spend versus S$2.5b guided previously. StarHub is still guiding for low single-digit revenue growth with 32% EBITDA margin (vs. 32.9% in FY13).

Yields are still decent

As before, the spectre of rising interest rates is looming; but the recent pullback in the telcos’ share prices is starting to bring dividend yields back towards the 5% handle (4.8% average forecast). Hence we think that these stocks should continue to have a place in any portfolio also for their defensive earnings. Maintain NEUTRAL on the sector.

Source: OCBC Research - 25 Mar 2014