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.