>Optus (Australia) Singapore ops & Sing Tel (Singapore)

On a stable footing


Optus (Australia) has been resilient against competition and the planned initiatives on the network side would strengthen its competitive position even further. In India and Indonesia, voice tariff competition is abating, leading to an improved operating environment. While slower Singapore economy growth and the strong SGD is a concern, we maintain our dividend payout ratio of 78%/88% for FY13/14. We maintain our S$3.34 TP and ADD rating.


Post-paid market dominance to continue in Singapore: While the government has forecast 1-3% GDP growth in 2012, we view telecom spending to be relatively resilient. Mobile post-paid segment should continue to drive growth. Higher smart-phone subsidies could be a drag on margin, but this would be more than offset by lower content costs and margin upside in the IT business.


Optus well placed against competition: Optus has been strongly outperforming competition and holding Ebitda in a shrinking Ebitda pool. It has planned a number of initiatives such as 900MHz for 3G and trialling LTE. While Telstra could gun for lost revenue market share by tariff cuts keeping the competitive intensity high, we believe Optus should continue to out-perform due to its innovative offerings and tight cost control. Weak outlook for A$ vs. S$ (due to bearish outlook for commodities) and the Australian economy’s vulnerability to an impending slowdown in China are macro risks.


Competitive landscape evolving in India and Indonesia: We expect 14% revenue growth for Bharti in FY13 driven by tariff increases, 3G, in addition to subscriber growth. Clarity should emerge as key regulatory decisions are expected soon. In Indonesia, while there is some competition in 3G, we do not expect brutal tariff wars, as telcos also have to bear smart-phone subsidies. Telkomsel’s superior network quality would make it better positioned to leverage data revenue growth. There are margin levers in the form of lower licence and frequency fees. Weakening LCYs vs. the S$ is a concern though.



Singapore ops: Post-paid dominance to continue


Overall economy poised for a sharp slowdown, but wireless on strong footing: Singapore economy contracted 4.9% QoQ in 4QCY11 registering the second contraction in three quarters. The Singapore government has cut the 2012 GDP growth rate forecast from 4-6% to 1-3%, anticipating a sharp slowdown. Telecom should maintain its defensive characteristics – there is a portion of travel and communication discretionary spend which can convert to telecom revenues, though telecom may see an absolute revenue growth drop.


SingTel continues to have a commanding presence in post-paid. Its market share has increased based on emphasis on network and service quality, though it may seem to be an insufficient differentiator.


Multiple margin props: Ebitda margin will have multiple levers from lower content costs in pay-TV and margin expansion in the IT business and we expect this to offset the impact of higher subsidies due to iPhone 4S being a raging hit.


To read the full report: SING TEL


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