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SingTel - A More Guarded Tone

kiasutrader
Publish date: Thu, 15 Aug 2013, 09:40 AM
SingTel's results conference  call  touched  on  its  pay-TV  biz,  Optus  and plans for Telkomsel's towers. We keep our forecasts but raise our FV to SGD3.80  (from  SGD3.70),  after  updating  the  market  valuations  of  its listed  OpCos  and  its  latest net  debt  level.  Maintain  NEUTRAL  given  the  lack  of  re-rating  catalysts  and  earnings  headwinds  at  Optus.  Prefer  M1 (NEUTRAL, TP: SGD3.25) for exposure to Singapore telecoms.  
- Mobile  weakness  lingers  on  at  Optus.  Optus'  operating  metrics remained  weak,  with  a  6%  y-o-y  decline  in  mobile  service  revenue,  a contraction in its prepaid base, and an 11% y-o-y fall in postpaid ARPU. Although  its  transformational  initiatives  are  slowly  bearing  fruit,  we continue to see competitive headwinds from an aggressive Telstra (TLS, NR).  We  think  Optus  would  have  to  spend  more  to  retain  subscribers, capping its longer-term margin upside.  
- Sing  margins  likely  to  come  under  renewed  pressure  in  2H2013. SingTel  attributed  the  stronger  Sing  consumer  business  margin  in 1QFY14  to  a  combination  of:  i)  a  larger  mix  of  lower-end  Android handsets  sold,  ii)  cost  management,  and  iii)  a  higher  take-up  of  tiered data plans. We expect Sing consumer margin to come under pressure in 2Q/3QFY14  given  the  anticipated  launch  of  new  handset  models  -  eg Samsung  Galaxy  Note  III  and  iPhone  5s  -  as  well  as  an  increase  in content costs (BPL cost will be recognized from 2QFY14).  
- Satellite  business  to  stay.  SingTel's plan  to  divest  Optus' satellite business  was  probably  aborted  over  pricing  considerations. Management  has  opted  to  invest  further  in  the  business  and  does  not rule out an eventual IPO.  
- Forecasts. No changes to our forecasts.
- Investment risks. The key risks to our forecasts are: i) stronger/weaker SGD  vs  key  regional  currencies,  and  ii)  stronger/weaker-than-expected EBITDA margin from mobile competition.   


Source: OSK
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