Combo  plans.  We  expect  SingTel's  new  postpaid  Combo  Wifi  plans (bundled  with  Wifi  data)  to  raise  ARPU  by  5-8%  and  help  stem  the erosion in voice and SMS usage. The plans will be available for existing, new  and  re-contracting  subscribers  from  19  Aug.  It  is  charging  SGD3 more  per month  over its 4G postpaid data plans  based on similar data caps. The key differences are the unlimited downloads over Wifi until 31 July  2015  (following  which  customers  are  entitled  to  2GB  Wifi  data allowance with excess data usage deducted from the main bundle) and higher bundled minutes and SMS. 

Optus.  The  downward  pressure  on  Optus'  mobile  service  revenue appears  to  have  stabilised  with  a  smaller  contraction  of  0.8%  y-o-y  in 1QFY15  vs  a  decline  of  4.1%  and  6.9%  for  4QFY14  and  3QFY14 respectively. We expect a patchy recovery at Optus due to the structural revenue  pressure  and  competition  from  Telstra  (TLS  AU,  NR)  and Vodafone Hutchison.

Enterprise  segment  buckling  under  pressure.  SingTel  continues  to witness  competitive pressure in the  provision for  fibre  network services for  enterprises and  has  resorted to price discounting.  Group Enterprise (GE)  revenue dipped  0.1% y-o-y (-3.5% q-o-q) but EBITDA fell a more significant  7%  y-o-y  in  1QFY15.  The  GE  business  made  up  37%  of group revenue in 1QFY15 and 40% of consolidated EBITDA.  

PBTL  up  for grabs.  We do not rule out SingTel disposing of its 45%-owned  PBTL,  a  code  division  multiple  access  (CDMA)  player  in Bangladesh as the  telco  lacks scale,  being the smallest in a five-player market.  It  acquired  the  stake  in  2005  for  USD118m  with  the  carrying value of the investment at about USD190m.

Key Takeaways From Results Conference Call 
SingTel's results conference call was hosted by its Group CEO, Chua Sock Koong, Jeann Low (Group CFO), CEO of the Group Consumer (GC), Paul O' Sullivan, CEO of Group Enterprise (GE), Bill Chang and CEO of Group Digital Life, Allen Lew.  The main questions centred on its Singapore and Australian mobile businesses and the prospects of its enterprise segment. Singapore mobile business 
The key takeaways are:

ARPU dilution from shared plans.  SingTel's mobile revenue grew 2.4% y-o-y and 2% q-o-q, which  implied  stable mobile revenue share  in 2Q14.  Despite the higher  proportion  of  customers  on  tiered  4G  data  plans  (54%),  its  postpaid ARPU  fell 4% y-o-y  (+1%  q-o-q)  to SGD76 from SGD79 due to:  i)  the  dilution from  shared  data  plans,  ii)  lower  SMS  interconnect,  and  iii)  weaker  roaming revenue  as  roaming traffic tends to be stronger in  the  Jan-March  quarter.  The number of tiered data subscribers  that  have  exceeded their data caps widened to 18% from 16% in the previous quarter.  

Combo  plans.  We expect  SingTel's  new  postpaid  Combo  Wifi  plans (bundled with Wifi  data)  to raise  ARPU  by 5-8%  and help stem the erosion in voice and SMS  usage.  The  plans  will  be  available  for  existing,  new  and  re-contracting subscribers  from 19 Aug.  SingTel is charging SGD3/month more  (see  Figure  1) over its 4G postpaid  data plans  based on similar data caps. The key differences are  the  unlimited  downloads  over  Wifi  until  31  July  2015  (following  which customers  are  entitled  to  2GB  Wifi  data  allowance  with  excess  data  usage deducted from the main bundle) and higher bundled minutes and SMS.  The  new  plans will allow SingTel to offload data traffic on  its 3G/4G network to Wifi and  help to indirectly monetise the Wifi  service which is typically offered for free. We think Wifi users may find the combo plans attractive  as it is a managed Wifi service with access speeds that are 5x faster than conventional Wifi.  

SIM card ownership ruling. The Government's move to limit the number of SIM card ownership from 10 to 3 (effective 1 April) had a less pronounced impact on SingTel as its customers were topping more on their existing cards.

Optus seeing early signs of recovery 
The downward pressure on Optus' mobile service revenue appears to have stabilised with a smaller contraction of 0.8% y-o-y in 1QFY15 vs a decline of 4.1% and 6.9% for 4QFY14 and 3QFY14 respectively. Optus believes the recovery in its mobile revenue momentum is on track with the telco well-positioned to fend off competition, given the improvement in  product proposition and its  expanding 4G national network coverage (90% of the population by March 2015).  We  think  customers are warming up to its MyPlan  which  has  revolutionised  postpaid  offerings  in  the  market  with  its  data sharing SIM, but expect revenue recovery to be gradual given the structural pressure on industry revenue.

Optus attributed the 10% q-o-q (+4.5% y-o-y)  decline in EBITDA  to seasonality and higher staff cost associated with the increased number of own branded stores. A fourth entrant into the market? SingTel said there  remains little  clarity  on the  potential  fourth entrant into the mobile market,  and if  the regulator would grant certain concessions.  Its rival,  StarHub (STH SP, NEUTRAL, TP: SGD4.20) had earlier indicated a partial spectrum  award as the likely option  for a new entrant vs the mobile virtual network operator (MVNO) model, a route undertaken by Virgin Mobile back in 2001 (only to cease operations less than 12 months  later).  SingTel said it  has  significant  "experience"  in  markets which have seen the entry of new operators.

Open to divesting PBTL 
We  do  not  rule  out  SingTel  disposing  of  its  45%-owned  PBTL,  a  CDMA  player  in Bangladesh  as the company lacks scale,  being the smallest operator in a five-player market.  It  acquired  the  stake  in  2005  for  USD118m  with  the  carrying  value  of  the investment  at  about  USD190m.  We  gather  that  PBTL  is  self-sustaining  (free  cash flow positive) and does not require further capital.  PBTL's 1.4m subscribers translate into a mobile market share of less than 2% in the market. Recent local media reports have highlighted Mobifone as a potential buyer.

Overseas associates 
We  expect  the  strong  growth  in  associate  contributions  to  be  sustained  by  Bharti (BHARTI IN,  NR)  and  Globe (GLO PM, NR),  underpinned by robust 3G  data  uptake and  subscriber share  gains respectively.  Despite the  higher depreciation expense at Telkomsel  from the rapid rollout of its 3G network,  the telco should  continue to gain revenue share  due to  its network  advantage. We believe the pressure on  Advanced Info Service (ADVANC TB, NEUTRAL, TP: THB235)'s revenue from the weak macro economic  environment  in  Thailand  has  subsided,  with  the  telco  likely  to  see  a recovery in its revenue momentum in 2H2014.   

Forecast and guidance 
We  make  no  changes  to  our  forecasts  post  the  results  call.  Management  has reaffirmed the earlier  FY15 guidance of: i)  stable consolidated revenue and EBITDA,ii) Sing mobile revenue to grow by "mid -  single  digit", iii) Optus revenue to decline by "low  single-digit",  and  iv)  group  capex  at  SGD2.3bn,  of  which  SGD900m  is  for  its Singapore  operations.  The  latter  excludes  the  SGD900m  payment  for  Optus' 700MHz spectrum next year.

Risks
The  key  risks  to  our  forecasts  are:  i)  a  stronger  SGD,  ii)  rising  competition  in  key markets, and iii) higher-than-expected subscriber acquisition costs.

Valuation and recommendation 
Maintain NEUTRAL. We keep our NEUTRAL rating on the stock due to competitive pressures  within  its  enterprise  segment  and  Optus  charting  a  difficult  revenue recovery.  We  raise  our  SOP  valuation  slightly  to  SGD3.82  (from  SGD3.80),  after updating our valuations on its associates and  incorporating  our recently-lowered TP on Advanced Info Service. Our Top Pick for Singapore telco exposure is M1 (M1  SP, BUY, TP: SGD4.30).

Source: OSK-DMG