SingTel, StarHub predicted to suffer from weaker earnings this year

Will M1 outperform rivals?

According to OCBC Investment Research, while M1 expects to see moderate earnings growth this year and pay out at least 80% of earnings as dividends, both SingTel and StarHub are more muted in their outlooks.

In particular, SingTel now expects group revenue to decline by mid single-digit level and EBITDA to decline by low single-digit level, citing the persistently weaker AUD. StarHub continues to expect low single-digit revenue growth with an unchanged EBITDA margin of 31%.

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All three telcos reported 2QCY13 results that came in within its expectations. M1’s core 1H13 earnings met 52% of OCBC's full-year forecast and StarHub’s 1H met 53%; SingTel’s 1QFY14 met 24%. M1 declared an interim dividend of S$0.068/share, versus S$0.066 last year. StarHub declared a quarterly dividend of S$0.05/share, as guided. 

Review of Singapore mobile operations
Core post-paid mobile subscribers grew by 1.0% QoQ to 4.36m in the Apr-Jun quarter, led by StarHub (+1.3% QoQ), SingTel (+1.0%) and M1 (+0.8%). But overall subscriber growth seems to be slowing as the market is already 151.9% penetrated.

Nevertheless, monthly ARPUs ticked upwards for all three telcos, boosted by more subscribers switching over to the new tiered pricing plans with less generous data bundles; the number of subscribers who exceeded their free bundled data also grew, as more people moved onto the faster 4G network. 

Yields are not that attractive
As before, the spectre of rising interest rates is making the telcos’ yields less attractive (currently their forecast yields are around 4.7%), although these stocks should still have a place in any portfolio for their defensive earnings. We also do not see any potential growth drivers in a pretty saturated mobile market.