Telecom Sector

OCBC, 8 Sep 2014

FOR Q2 CY2014, 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 per cent y-o-y earnings drop while StarHub reported a 6 per cent decline, but M1 saw a 12 per cent jump.

Nevertheless, we had two telcos trimming their FY guidance - SingTel now expects core revenue to remain stable but cuts Ebitda growth guidance from single-digit previously to stable; StarHub now expects stable revenue versus low single-digit growth previously, but keeps 32 per cent service Ebitda margin.

Intense broadband competition ahead. One main reason for the lower profitability is likely due to the still intense competition in the fibre broadband market, with the smaller players (including M1) using low pricing to snatch market share away from the incumbents. As such, sliding average revenues per user (ARPUs) are seen across the board in Q2 CY2014 and could continue to edge lower in the coming quarters.

Still a long road to monetise data. Meanwhile, the telcos may still have a long run ahead of them trying to monetise 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 per cent.

In addition, the recent news that MyRepublic (MR) is interested in being the fourth 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 June, but with insipid results.

The event drew only 100,000 subscribers and generated just S$10 million of revenue for SingTel, the exclusive content broadcaster here. Meanwhile, the threat of over-the-top 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.

NEUTRAL