• Guidance cuts seen
• Outlook still muted
• Yields are still fairly decent

SingTel, StarHub trim guidance

For 2QCY14, it was a pretty muted quarter for the telcos, with all of them reporting results that were within our expectations, despite the weaker revenues and earnings – SingTel saw a 2% YoY earnings drop while StarHub reported a 6% decline, but M1 saw a 12% jump. Nevertheless, we had two telcos trimming their FY guidance – SingTel now expects core revenue to remain stable but cuts EBITDA growth guidance from singledigit previously to stable; StarHub now expects stable revenue versus low singledigit growth previously, but keeps 32% service EBITDA margin.

Intense broadband competition ahead

One main reason for the lower profitability is likely due to the still intense competition in the fiber broadband market, with the smaller players (including M1) using low pricing to snatch market share away from the incumbents. As such, sliding ARPUs are seen across the board in 2QCY14 and could continue to edge lower in the coming quarters.

Still a long road to monetize data

Meanwhile, the telcos may still have a long run ahead of them trying to monetize data to make up for the fall in voice and SMS usage. While there are more subscribers shifting to the tiered pricing plans with more restrictive data bundles, we note that the percentage of these subscribers who exceed their data caps continue to remain below 20%. In addition, the recent news that MyRepublic (MR) is interested in being the 4th telco here could bring about more competition, especially after MR said it intends to offer unlimited data packages.

2014 FIFA World Cup came and gone

Over in the Pay TV space, the 2014 FIFA World Cup took centre stage in Jun, but with insipid results. The event only drew 100k subscribers and generated just S$10m of revenue for SingTel, the exclusive content broadcaster here. Meanwhile, the threat of OTT content providers remains ominous and could limit the Pay TV market size here.

Maintain NEUTRAL

With earnings growth likely to stagnant this year, we maintain our NEUTRAL view on the sector for now, supported by still decent yields.

Source: OCBC Research - 8 Sep 2014