Positive Scorecards, Maintain Overweight

All the three telcos – MobileOne (M1), SingTel and StarHub – reported a pretty resilient set of results recently. Both M1 and SingTel earnings were slightly ahead of our forecast; StarHub's earnings were in-line. Overall, their earnings demonstrated the resilience of the telcos.

Review of operations
On the mobile front, we note that consumer spending (ARPU) has rebounded despite the economic downturn – partly aided by the growth in mobile data usage. Acquisition costs have also started to trend up again for both M1 and StarHub. M1 has shown the sharpest increase but it has managed to bring its churn rate down. On the broadband front, new additions have stagnated and ARPUs for SingTel and StarHub have declined further. On the PayTV front, StarHub has managed to maintain both its subscriber base and ARPU; SingTel has recently announced that its mio TV subscription have exceeded 100,000.

Stable outlook for rest of 2009
Going forward, all the three telcos expect their Singapore operations to remain stable or show slight growth, with EBITDA margins remaining relatively steady; this as they strive to reduce costs to keep pace with the expected softening in operating revenue. But due to their strong cashflow-generative businesses, the telcos have largely kept their dividend payout guidance; M1 to pay at least 80% of underlying net profit; SingTel to pay 45-60% of underlying earnings; StarHub to pay S$0.18 per share, or S$0.045 per share per quarter.

BPL uncertainty looms but we are not perturbed
The broadcast rights of the 2010-2012 Barclays Premier League (BPL) would be up for grabs and StarHub's PayTV business would be affected if it fails to secure the rights. However, we are not perturbed. Yes, SingTel may be looking to add more exclusive content but based on its current mio TV subscriber base, it may not be able to fully maximize the investment. But come 2012, SingTel would be in a better position to benefit, as the National Broadband Network (NBN) will fully come onstream.

Maintain Overweight
Although there has been a steady switch into high-beta stocks on hopes of a rapid recovery in both the economy and corporate earnings, we are not entirely convinced. And until we see more concrete signs of a rapid recovery, we would still advocate holding on to these defensive counters for their attractive dividend yields and as a means of diversification. Maintain OVERWEIGHT.

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