20131210-Maybank_KERPL-2014__When_Data_And_Dividends_Go_Together_25页_1mb

Summary of the Document: 2014 Telco Market Outlook

Core Content

The document provides an analysis of the Singapore telco market in 2014, focusing on the performance of M1, StarHub, and SingTel. It outlines key trends, investment opportunities, and the outlook for each company based on their ability to monetize data traffic and manage capital efficiently.

Main Viewpoints

• Market Outlook: The Singapore telco market is expected to remain subdued in 2014, with data traffic being a key driver. Fixed broadband and Pay TV remain competitive, but the main growth opportunities lie in data monetization and capital management.
• Investment Recommendations: M1 is the top BUY recommendation with a 25% upside, followed by StarHub with a 23% upside. SingTel is maintained at HOLD due to a lack of growth or dividend catalysts.
• Data Monetization: The surge in data traffic is expected to accelerate with the adoption of 4G/LTE. M1 is projected to benefit the most due to its low earnings base and strong data monetization potential.
• Capital Management: Companies with lower gearing, particularly M1 and StarHub, are more likely to increase dividends. Their net debt/EBITDA ratios have dropped to multi-year lows, improving their financial flexibility.
• Subscriber Acquisition Costs: These are expected to moderate due to the growing popularity of cheaper Android smartphones, reducing the need for subsidies and improving margins.
• Roaming Trends: Roaming revenue is currently under pressure, but the introduction of worry-free data roaming plans is expected to drive a recovery in the long term.

Key Trends and Opportunities

1. Data Monetization

• 4G/LTE Adoption: Expected to grow faster than anticipated, with more than 30% of postpaid users already on tiered data plans.
• ARPU Growth: Tiered data plans have boosted ARPU for M1 and StarHub, while SingTel's ARPU has stabilized.
• Future Demand: As 3G handsets become obsolete, users will be forced to upgrade to 4G/LTE, leading to increased data usage and potential for higher ARPU.

2. Capital Management

• Free Cash Flow (FCF) Improvement: M1 and StarHub are forecasted to have improved FCF in 2014F, which will support higher dividend payouts.
• Dividend Potential: M1 may increase its dividend payout to 100% from 80%, while StarHub may raise its ordinary dividends.
• Net Debt/EBITDA Ratios: M1 and StarHub have net debt/EBITDA ratios of 0.6x and 0.5x respectively, indicating strong financial health.

3. Roaming Recovery

• Roaming Revenue Pressure: International roaming revenue has declined due to fear of "bill shock" and the availability of free WiFi and prepaid SIM packs.
• Turnaround Expected: The introduction of worry-free data roaming plans, including unlimited data options, is anticipated to reverse the trend and improve roaming revenue.

4. Fixed Broadband and Pay TV

• Competition Intense: Residential fixed broadband is highly competitive with multiple players, including ViewQwest, MyRepublic, and SuperInternet.
• Pricing Trends: Prices are nearing the bottom, and the market is expected to stabilize with an upgrade cycle in 2014.

5. Subscriber Acquisition

• Cost Moderation: Subscriber acquisition costs are expected to decrease as Android phones become more popular.
• Handset Replacement Cycle: Expected to lengthen, which reduces the need for subsidies and improves EBITDA margins.

Key Players and Their Performance

Conclusion

The Singapore telco market is maturing, and the focus is shifting towards data monetization and capital efficiency. M1 and StarHub are positioned as the top performers in 2014 due to their strong data strategies and improved financial positions, while SingTel remains a HOLD due to limited growth and dividend potential. The long-term outlook suggests a zero-sum game, with winners being those who can adapt quickly to the changing landscape and capitalize on new opportunities.