SingTel gets dragged by risks in India

Plus margin pressure in Singapore.

According to CIMB, Optus’s post-2Q13 update to analysts today highlights stability in its EBITDA performance as its key target. In the context of a slowdown in industry growth and regulatory impact on revenue, we consider stable EBITDA to be a manageable target.

Here's more from CIMB:

In the medium term, its strategy for value improvement is to enhance the customer experience. We make no change to forecasts. SingTel remains an Underperform given regulatory risks in India and margin pressure in Singapore with an SOP-based target price of S$3.22.

We prefer StarHub for its potential dividend upside. We met with management today as the company held a briefing after 2QFY13 results. The company‟s focus is on cost reductions, including lowering subsidies, and a review of sales channels to better align costs with revenue in a more mature market.

It noted that the recent market trend is stable pricing with the focus being on customer retention while pricing to gain market share is an out-of-date (growth era) strategy.

Optus has a new vision to be the leader in “customer experience for flexible and personalised services, anywhere on any device.” Initially, this would mean spending to improve network quality and perceptions of quality.

Optus said it would also require better mobile consumer analytics to ensure customers make best use of mobile applications.

We believe management has a strong focus on cost control and is on track to achieve FY13 EBITDA guidance.

We see no reason to think that the recent more stable pricing environment in mobile is not going to continue but competition for subscribers is likely to heat up when VHA is still some time away from ramping up its marketing efforts and, when it does, it is more likely to focus on qualitative issues and service differentiation rather than being aggressive on price.

We think in the medium term there is potential upside from monetising data better and improving the customer experience on mobile devices.