Sector Update Summary - 25 November 2013
Core Content
This document provides an update on the Singapore telecommunications sector, focusing on the conditional sale of OpenNet to NetLink Trust, and includes financial data and key ratios for M1, StarHub, and SingTel.
Key Developments
- Conditional Sale of OpenNet: The Infocomm Development Authority (IDA) has approved the sale of OpenNet by its four major shareholders (SingTel, Axia NetMedia, Singapore Press Holdings, and Singapore Power) to NetLink Trust, which is fully owned by SingTel.
- Extended Sell-Down Period: SingTel has been granted an extension to reduce its equity stake in NetLink Trust from 30% to 25% via a public offering, originally set for April 2014, now extended to April 2018.
- Conditions Imposed by IDA:
- NetLink Trust must establish an independent board of directors and a monitoring board composed of government officials.
- Approval from IDA is required for the appointment of contractors and their associates.
- SingTel must transfer its subcontracting team to NetLink Trust.
- CityNet, as the trustee-manager of NetLink Trust, will have full independence in pricing decisions.
Main Points
- Industry Concerns: The industry was concerned that OpenNet, under SingTel's influence, was causing delays in fibre rollout and providing preferential treatment to SingTel.
- IDA's Rationale: The conditions were imposed to address these concerns and ensure that SingTel does not have undue influence over NetLink Trust.
- Market Reaction: The approval of the sale is seen as a nonevent by StarHub and M1, which have adapted to the current situation by building their own networks in commercial buildings.
- SingTel's Pressure: SingTel remains under official pressure to reduce its stake in NetLink Trust, which may not be favorable for its shareholders seeking special dividends.
Key Financial Information
M1 (M1 SP)
| Metric |
2011 |
2012 |
2013F |
2014F |
2015F |
| Sales (SGD m) |
1,065.0 |
1,076.6 |
1,104.4 |
1,126.3 |
1,147.0 |
| Pretax Income (SGD m) |
197.5 |
183.3 |
203.6 |
220.1 |
246.6 |
| Net Income (SGD m) |
164.2 |
146.4 |
169.0 |
182.7 |
203.7 |
| EPS (cts) |
18.1 |
16.1 |
18.4 |
19.8 |
22.1 |
| EBITDA (SGD m) |
310.6 |
299.8 |
331.1 |
350.0 |
375.8 |
StarHub (STH SP)
| Metric |
2011 |
2012 |
2013F |
2014F |
2015F |
| Sales (SGD m) |
2,312.0 |
2,421.6 |
2,349.1 |
2,401.2 |
2,447.8 |
| Pretax Income (SGD m) |
379.8 |
431.4 |
452.7 |
474.5 |
502.4 |
| Net Income (SGD m) |
315.5 |
359.3 |
374.7 |
392.9 |
415.0 |
| EPS (cts) |
18.4 |
20.9 |
21.8 |
22.9 |
24.2 |
| EBITDA (SGD m) |
676.0 |
719.8 |
738.3 |
766.2 |
797.4 |
SingTel (ST SP)
| Metric |
2012 |
2013 |
2014F |
2015F |
2016F |
| Sales (SGD m) |
18,825.0 |
18,183.0 |
17,383.3 |
17,627.1 |
17,874.6 |
| Pretax Income (SGD m) |
1,415.6 |
1,447.3 |
1,510.0 |
1,545.5 |
1,582.3 |
| Net Income (SGD m) |
1,060.1 |
1,084.3 |
1,120.0 |
1,152.2 |
1,182.5 |
| EPS (cts) |
16.1 |
18.4 |
19.8 |
22.1 |
23.5 |
| EBITDA (SGD m) |
2,048.2 |
2,215.2 |
2,250.0 |
2,325.5 |
2,400.0 |
Key Ratios
M1
| Ratio |
2013F |
2014F |
2015F |
| EPS Growth (%) |
14.6 |
19.8 |
4.8 |
| Operating Margin (%) |
19.0 |
20.1 |
21.8 |
| Net Profit Margin (%) |
15.3 |
16.2 |
17.8 |
| ROA (%) |
17.3 |
18.1 |
19.6 |
| ROE (%) |
46.4 |
45.8 |
46.6 |
| Net Debt/Equity (X) |
60.8 |
56.4 |
50.3 |
| Net Debt/EBITDA (X) |
0.8 |
0.6 |
0.5 |
StarHub
| Ratio |
2013F |
2014F |
2015F |
| EPS Growth (%) |
4.3 |
4.8 |
5.6 |
| Operating Margin (%) |
19.9 |
20.4 |
21.1 |
| Net Profit Margin (%) |
16.0 |
16.4 |
17.0 |
| ROA (%) |
21.0 |
21.9 |
22.2 |
| ROE (%) |
621.7 |
385.4 |
254.1 |
| Net Debt/Equity (X) |
6.3 |
3.3 |
1.8 |
| Net Debt/EBITDA (X) |
0.7 |
0.6 |
0.5 |
SingTel
| Ratio |
2014F |
2015F |
2016F |
| EPS Growth (%) |
7.5 |
11.5 |
11.5 |
| Operating Margin (%) |
20.1 |
21.8 |
23.5 |
| Net Profit Margin (%) |
16.2 |
17.8 |
17.8 |
| ROA (%) |
18.1 |
19.6 |
20.0 |
| ROE (%) |
45.8 |
46.6 |
47.0 |
| Net Debt/Equity (X) |
5.5 |
3.5 |
3.5 |
| Net Debt/EBITDA (X) |
0.6 |
0.5 |
0.5 |
Summary of Recommendations
- Buy: M1 and StarHub
- Hold: SingTel
The approval of the sale is seen as a step forward but not sufficient to address the underlying issues in the industry. M1 and StarHub are preferred over SingTel due to their potential for faster earnings growth and the possibility of a special dividend. However, the extension of the sell-down period for SingTel is viewed as a negative development.
