Mobile - heading in the right direction
• Data re-pricing to benefit mobile business
• Handset subsidy costs may decline by another S$50-80 per handset
• M1 is our top pick as it offers higher growth and better yield (5.4%) than peers
• Data re-pricing to benefit mobile business.
From 16 Sep 2013 onwards, SingTel has doubled excess usage charges to S$10.70 per GB. Meanwhile, M1 & StarHub have been offering promotional prices of S$5.35 and S$6.42 per GB, compared to their regular prices of S$10.70 and S$8.56, respectively. M1 & StarHub were forced to offer the promotional prices in the past due to SingTel’s reluctance to raise rates, but that stands changed now. M1 also benefits from its Sep 2012 price hike, where it raised monthly subscription fees by S$3 across the board to match price plans offered by its competitors.
• Handset subsidy costs may decline by another S$50-80 per handset in a year or two.
There is a concerted effort by telcos to lower handset subsidy costs by promoting Android phones which need lower subsidies than iPhones. In addition, the three telcos have lowered subsidies on iPhone 5S by around S$30 compared to iPhone 5 last year. Samsung Galaxy and iPhones are still the top selling devices but handsets from Sony and HTC are seeing more interest too
• Roaming revenue decline may offset the positives.
Due to the drop in international SMS and voice revenue, roaming revenue (10-12% of mobile revenue) could decline more than expected.
Valuation & Stock Picks
• M1 is our top pick in the sector.
Over 90% of M1’s revenue comes from the Singapore mobile sector versus 60% for StarHub and 12% for SingTel. Besides, M1 will continue to
gain broadband subscribers until its market share reaches 20%+. M1 offers high-single digit growth with 5.4% yield versus StarHub and SingTel each offering mid-single digit growth with yields of 4.9% and 5.1%, respectively.
• Weak AUD & IDR are key concerns for SingTel.
SingTel’s Australian and Indonesian businesses contribute 25% and 20% of group earnings, respectively. AUD & IDR are down 10% and 20%, respectively implying 2.5% and 4% adverse impact on group earnings.
Publish date: 03/01/13