Stock Name: StarHub
Company Name: STARHUB LTD
Stock Name: M1
Company Name: M1 LIMITED
Stock Name: SingTel
Company Name: SINGTEL
Singapore Telecom Companies: Sector offers >6% yield, 2Q11 Review
· M1's higher gearing and weak free cash flow may limit earnings payout to
80%, below last year's 100%.
· SingTel continues to gain mobile revenue share while StarHub is gaining
non-mobile subscribers despite absence of English Premier League rights.
· StarHub is our top pick, trading at 7.4% yield (fixed 20 Scts DPS) versus
6% for M1 & SingTel.
A quick recap of 2Q2011 results. M1 & StarHub reported in-line earnings
while SingTel's earnings were 5% below our expectations. SingTel
disappointed on lower than expected earnings contribution from Bharti and
Optus. Bharti was hit by 3G rollout costs and higher tax rate in India.
Optus, on the other hand, witnessed higher mobile competition as smaller
player VHA joined market share battle with incumbent Telstra.
StarHub (Buy, TP: S$3.05) is our top pick. StarHub's free cash flow is
likely to be ~120% of FY11F earnings, as the company pays minimal cash tax
due to its deferred tax assets. StarHub has a fixed dividend policy of 5
Scts per quarter for FY11F. We believe this will be maintained in the
coming years.
StarHub impressed in the non-mobile segment. Despite loss of EPL and ESPN
rights, StarHub continued to gain pay TV subscribers with sequentially
stable ARPU. Moderate subscriber growth in the broadband segment and
stable ARPU also demonstrated solid execution.
M1 (Hold, TP: S$2.60) may not gear up significantly above its peers. At the
end of 2Q11, M1 had net debt to annualized EBITDA of 1.1x versus 0.7x for
StarHub and SingTel each as shown in the chart on the side. M1's gearing
spiked from borrowing S$81m to partly pay for FY10 dividends, as its free
cash flow was very weak. Even FY11F free cash flow may be ~70% of FY11F
earnings due to fair value accounting for handsets. In our view, investor
should expect 80% earnings payout ratio.
SingTel (Hold, TP: S$3.20) continued to gain mobile revenue share in
Singapore. This was driven by more attractive lineup of handsets and
devices offered slightly ahead of peers, focus on pushing data SIM cards by
bundling them with fixed broadband service and attractive discounts to
subscribers on re-contracting. Peers do not emulate these tactics lest
market should become more competitive.
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Company Name: STARHUB LTD
| Research House: DBS Vickers | Price Call: BUY | Target Price: 3.05 |
Stock Name: M1
Company Name: M1 LIMITED
| Research House: DBS Vickers | Price Call: HOLD | Target Price: 2.60 |
Stock Name: SingTel
Company Name: SINGTEL
| Research House: DBS Vickers | Price Call: HOLD | Target Price: 3.20 |
Singapore Telecom Companies: Sector offers >6% yield, 2Q11 Review
· M1's higher gearing and weak free cash flow may limit earnings payout to
80%, below last year's 100%.
· SingTel continues to gain mobile revenue share while StarHub is gaining
non-mobile subscribers despite absence of English Premier League rights.
· StarHub is our top pick, trading at 7.4% yield (fixed 20 Scts DPS) versus
6% for M1 & SingTel.
A quick recap of 2Q2011 results. M1 & StarHub reported in-line earnings
while SingTel's earnings were 5% below our expectations. SingTel
disappointed on lower than expected earnings contribution from Bharti and
Optus. Bharti was hit by 3G rollout costs and higher tax rate in India.
Optus, on the other hand, witnessed higher mobile competition as smaller
player VHA joined market share battle with incumbent Telstra.
StarHub (Buy, TP: S$3.05) is our top pick. StarHub's free cash flow is
likely to be ~120% of FY11F earnings, as the company pays minimal cash tax
due to its deferred tax assets. StarHub has a fixed dividend policy of 5
Scts per quarter for FY11F. We believe this will be maintained in the
coming years.
StarHub impressed in the non-mobile segment. Despite loss of EPL and ESPN
rights, StarHub continued to gain pay TV subscribers with sequentially
stable ARPU. Moderate subscriber growth in the broadband segment and
stable ARPU also demonstrated solid execution.
M1 (Hold, TP: S$2.60) may not gear up significantly above its peers. At the
end of 2Q11, M1 had net debt to annualized EBITDA of 1.1x versus 0.7x for
StarHub and SingTel each as shown in the chart on the side. M1's gearing
spiked from borrowing S$81m to partly pay for FY10 dividends, as its free
cash flow was very weak. Even FY11F free cash flow may be ~70% of FY11F
earnings due to fair value accounting for handsets. In our view, investor
should expect 80% earnings payout ratio.
SingTel (Hold, TP: S$3.20) continued to gain mobile revenue share in
Singapore. This was driven by more attractive lineup of handsets and
devices offered slightly ahead of peers, focus on pushing data SIM cards by
bundling them with fixed broadband service and attractive discounts to
subscribers on re-contracting. Peers do not emulate these tactics lest
market should become more competitive.
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