2010-Jul-30 - DBS Vickers - iPad Telco

8/9/2019 2010-Jul-30 - DBS Vickers - iPad Telco

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www.dbsvickers.com

Refer to important disclosures at the end of this report

ed: MY / sa: JC

STI : 2,997.65

Analyst

Sachin Mittal (65) 6398-7950

[email protected]

PER

FCF Yield

EV/ EBITDA

Singapore Telecom, FY11 & FY12 earnings respectively

Source: DBS Vickers

DBS Group Research. Equity 30 July 2010

Singapore Industry Focus

Telecom Companies

Recommendations

Price Mkt Cap Target Rating

PriceSINGAPORE S$ S$ (bn) S$

MobileOne 2.14 1,406 2.30 BUY

StarHub 2.35 2,946 2.20 FULLYVALUED

Singapore Telecom 3.11 36,231 3.45 BUY

Source: DBS Vickers

iPad- lessons learnt from AT&T

• iPad’s microSIM is smaller than traditional SIM; New

revenue stream for operators from iPad’s 3G-data plan.

• Potential could be 2-3% of revenue and 3-4% of earnings,

plus for cellular players.

• M1 offers cheaper iPad plans with limited usage, a lesson

learnt from AT&T. SingTel and StarHub offer premium

plans with higher usage.

• We prefer SingTel & M1 to StarHub.

New revenue-stream for cellular players. iPad uses microSIMcard, which is smaller than traditional SIM card. Arguably SIM cardcan be trimmed to a microSIM card but then it would becomeuseless for smartphone ruling out interchangeability. As such, iPadowners would need to buy new 3G-data plan, which would be anew revenue stream for cellular players. We estimate 50K and150K iPad households in 2010 and 2011, based on 5% and 15%household penetration rate in Singapore in 2010 & 2011respectively. Assuming 80% of iPad users subscribe to 3G-data planwith average ARPU of S$25, we estimate iPad data revenue ofS$18m in 2011F, about 2.5% of industry cellular revenue. With no

device subsidy involved, we expect 70-80% of revenue to flow tothe bottomline, contributing about 3-4% of cellular industrybottomline in 2011.

M1’s iPad plan targets light 3G-users, lesson learnt fromAT&T. In terms of strategy, M1 seems to target light 3G-data userswith cheaper plans, more appealing to the students. This is incontrast to SingTel and StarHub, who are targeting heavy-datausers with premium plans. Plus there is no initial fee for M1 iPadplans in contrast to its competitors. This is also inline with AT&T’sexperience where it stopped offering unlimited 3G-plans to its newiPad customers and offers maximum 2GB data limit (lower thanM1’s 3GB) due to capacity constraints, most probably. AT&T

realized that only 2% of people used more than 2GB, congestingthe network for the rest 98%. In our view, iPad is like a notebookwith more indoor (Wi-Fi) usage and consumers should bediscouraged to use excessive 3G-data over Wi-Fi data. While M1does offer unlimited data plan, we expect more traction forcheaper plans as consumers budget their iPad bills on top ofsmartphone bills. SingTel targets high-end users with 50GB of datalimit while StarHub offers unlimited data under its iPad plans, whichraises questions on the efficient use of 3G-network.

Pure cellular players should benefit more. We favor M1 as thechief beneficiary of iPad’s growth in Singapore. We continue tofavor SingTel and M1 over StarHub. We like SingTel for strongOptus, recovering Bharti and attractive valuations. We like M1 for

its ability to gain its market share, capital management potentialand defensive 7% dividend yield. For StarHub, we are afraid thatgroup equity may become negative, if it continues with 20 cents

11.8 12.1

15.2

11.6 11.513.5

0

5

10

15

20

M1 SingTel Starhub

2010F 2011F

(x)

7.2

6.3 6.4

8.6

6.6

8.7

0

2

4

6

8

10

M1 SingTel Starhub

2010F 2011F

(%)

6.6

7.3

7.7

6.5

6.97.2

5.5

6.0

6.5

7.0

7.5

8.0

M1 SingTel Starhub

2010F 2011F

(x)



Industry Focus

Singapore Telecom Companies

Page 2

M1 offers lowest priced data plans (postpaid) with limited capacity and no initial fee.

Data Lite DataUnlimited

Monthly Subscription $20 $39.40

Data Limit 3GB Unlimited

Excess Charge Cap $51.36 N/A

One-time fee N/A

Source: M1 website, DBS Vickers

StarHub offers most premium plans (postpaid) with unlimited capacity and highest initial fee.

2-year contractand free USB modem Withoutcontract

Monthly Subscription $43.66 $36.38

Data Limit Unlimited

Excess Charge Cap N/A

One-time fee $37.45

Source: StarHub website, DBS Vickers

SingTel offers reasonable plans (postpaid) with high capacity and moderate initial fee

2-year contract

and free USB dongle plusmicroSIM to SIM adaptor

2-year contract Without contract

Monthly Subscription $36.50 $30.50 $34.50

Data Limit 50GB

Excess Charge Cap $94.16

One-time fee $13.38

Source: M1 website, DBS Vickers

M1 & StarHub are more aggressive than SingTel in prepaid iPad plans. M1 offers cheaper plans for light users

SingTel StarHub M1

Initial Price $20 $12.60 $32

Data Limit 1GB Unlimited 2.5GBValid Period 30 Days 3 Days 60 Days

Top Up S$49.50 for 30 days S$32 for 60 days S$30 for 2GB

S$24.50 for 7 days S$25 for 7 days S$18 for 1GB

S$10 for 2 days S$16 for 3 days S$5 for 256MB

Source: operator’s website, DBS Vickers



Industry Focus


Page 3

M1 should benefit in 2010F from higher capex to service revenue ratio for 2009 & 2010F

Capex (S$m) 2007 2008 2009 2010F

M1 56 95 120 100

StarHub 212 222 232 250*

SingTel 500 800 680 800

Capex/Service Rev 2007 2008 2009 2010F

M1 7.7% 12.7% 7.1% 13.3%

StarHub 11.1% 10.9% 11.3% 11.7%*

SingTel 11.0% 15.5% 12.1% 13.2%

* Excludes an estimated S$50m for OpCo related capex, overall should be around 14%

Source: Operators, DBS Vickers

SingTel’s higher capex to service revenue of 15.5% in2008 helped SingTel gain market share in 2008. Weexpect M1 to defend or slightly increase market share in2010, on account of its over 17% & 13% capex to sales

ratio in 2009 and 2010F respectively. SingTel’s relativelyhigh ratio of 13.2% for 2010F indicates that thecompany may not lose market share in 2010F.

M1’s market share decline reversed in 2Q09 and has been rising gradually for the last five quarters

Source: Operators, DBS Vickers Substantial rise in data as % of revenue contribution in Singapore over the last five quarters

Source: Operators, DBS Vickers

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10

M1 StarHub Singtel

20.0%

24.0%

28.0%

32.0%

36.0%

40.0%

1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10

SingTel StarHub M1



Industry Focus


Page 4

Regional Telecom valuations

Singapore Telecom, FY11 & FY12 earnings respectively Source: DBS Vickers

Mkt Price Target Avg CAGR

Company FYE Cap (S$) Price % 6-mth 09-11 P/BV

(US$m) 29-Jul (S$) Upside Rcmd 1M 3M 6M 12M Vol (m) (%) 09A 10F 11F 09A 10F 11F 09A 09A 10F 11F

Hong Kong 21,094 18498.96 22158 21654 18259

China Mobile Dec 190,660 78.60 85.00 29% Hold 73.30 63 77 107 28.4 4 11.0 10.5 10.2 3.8% 3.9% 3.9% 2.7x 4.9x 4.6x 4.1x

China Telecom Dec 6,837 3.82 4.40 15% Buy 3.65 4 4 4 79.3 27 18.7 14.8 11.5 1.6% 2.4% 3.1% 1.2x 4.5x 3.9x 3.3x

China Unicom Dec 30,992 10.22 8.30 -19% FV 11.26 9 10 11 40.8 7 18.1 24.2 15.9 2.9% 1.9% 1.9% 1.0x 3.9x 3.8x 3.8x

6 11.1 10.8 9.9

Malaysia 1,358 1091.17 1339 1299 1097

Digi.Com Dec 6,029 24.68 21.30 -14% Hold 21.90 22 22 22 0.5 7 19.2 17.5 16.7 7.2% 7.0% 6.0% 12.6x 9.3x 8.8x 8.4x

Maxis Bhd Dec 12,514 5.31 5.40 2% Hold 5.00 5 5 5 4.1 8 17.8 17.1 15.4 4.4% 4.4% 4.9% 4.5x 10.1x 9.5x 8.6x

Telekom Dec 3,811 3.39 3.45 2% Hold 2.70 3 3 3 4.8 -9 19.8 23.7 23.9 34.7% 5.8% 5.8% 1.7x 4.9x 5.0x 4.9x

Axiata Group Dec 11,437 4.31 4.50 4% Buy 2.39 4 3 3 10.4 52 31.0 16.1 13.4 0.0% 0.0% 0.7% 2.0x 7.8x 5.6x 4.7x

19 21.9 17.4 15.5

Singapore 2,998 2316.56 3017 2908 2389

M1 Dec 1,410 2.14 2.30 7% Buy 1.47 2 2 2 1.0 6 13.1 11.8 11.6 6.3% 6.8% 6.9% 7.8x 7.0x 6.6x 6.5x

SingTel Mar 36,343 3.11 3.45 11% Buy 2.90 3 3 3 17.6 5 12.6 12.1 11.5 4.6% 4.9% 6.1% 2.2x 7.5x 7.3x 6.9x

Starhub Dec 2,955 2.35 2.20 -6% Fully Valued 2.08 2 2 2 2.4 -4 12.6 15.5 13.7 7.8% 8.5% 8.4% 33.5x 7.2x 7.9x 7.3x

4 12.7 12.4 11.6

Thailand 855 611.92 761 747 588

Advance Info Dec 8,512 92.50 120.04 30% Buy 88.00 79 84 93 7.1 6 15.6 14.3 13.9 12.2% 6.8% 7.0% 3.8x 6.2x 5.9x 5.5x

Total Access Communication Dec 3,305 45.00 53.49 19% Buy 32.00 35 35 34 6.1 19 16.1 11.0 11.3 3.1% 4.6% 4.4% 1.7x 5.9x 4.5x 4.2x

True Corporation Dec 939 4.28 5.16 20% Buy 2.26 3 3 2 66.6 1 27.1 28.3 26.5 0.0% 0.0% 0.0% 3.3x 4.6x 4.4x 4.2x

9 19.6 17.8 17.2

Indonesia 3,097 2069.875 2901 2647 2123

Indosat Dec 2,969 4,900 5,500 12% Hold 5100.00 6050 5450 5150 2.5 3 17.7 18.5 16.6 2.8% 2.7% 3.0% 1.5x 5.7x 5.0x 4.5x

XL Axiata Dec 4,506 4,750 5,200 9% Buy 1200.00 3525 2250 1280 2.2 28 27.5 20.2 16.8 1.1% 1.0% 1.2% 3.9x 7.6x 6.7x 5.8x

PT Telekom Dec 18,546 8,250 8,500 3% Hold 7750.00 8000 9500 8050 21.6 3 13.5 13.8 12.6 3.8% 3.9% 4.3% 4.2x 5.2x 5.0x 4.6x

7 15.6 15.2 13.7

Share Price PE (x) EV/EBITDAividend Yield (%)



Industry Focus


Page 5

DBSV recommendations are based an Absolute Total Return* Rating system, defined as follows:

STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

BUY (>15% total return over the next 12 months for small caps, >10% for large caps)

HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)

FULLY VALUED (negative total return i.e. > -10% over the next 12 months)

SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends

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Industry Focus


Page 6

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2010-Jul-30 - DBS Vickers - iPad Telco