UOB Kay Hian 2015-08-20: Telecommunication Sector Update - The Changing Landscape For Pay-TV.

SINGTEL Z74.SI STARHUB LTD CC3.SI M1 LIMITED B2F.SI

Telecommunications – Singapore The Changing Landscape 

  • For Pay-TV The differences in content offered by Singtel TV and StarHub TV have narrowed. The two pay-TV operators are also increasingly securing or renewing rights to content on a non-exclusive basis. Bundling of multiple services gives Singtel and StarHub a more resilient customer base that is less likely to be poached by competing mobile operators. SingTel remains our top pick. 
  • We upgrade M1 and StarHub from SELL to HOLD after recent share price correction. 

WHAT’S NEW 

  • Narrowing of differences in content offerings. Media Development Authority (MDA) requires pay-TV operators to cross carry each other’s exclusive content for broadcast rights secured on and after 12 Mar 10. This requirement makes it pointless for pay-TV operators to bid for content on an exclusive basis. We have previously postulated that the differentiation in content offered by Singtel TV and StarHub TV could be reduced over time. 
  • Singtel and StarHub are increasingly securing or renewing rights to content on a nonexclusive basis. For example, both Singtel TV and StarHub TV carry UEFA Champions League and Europa League on a non-exclusive basis through the Eurosports channel. Singtel has retained its lead to be the home of sports. It has also closed the gap in other genres by securing broadcast rights to Discovery channels, CNBC and NHK World earlier this year. 
  • What about BPL? Singtel and StarHub will commence negotiation and bidding for the broadcast rights to Barclays Premier League (BPL) for the 2016/17, 2017/18 and 2018/19 seasons in 4Q15. Singtel intends to own broadcast rights to strategic content, such as BPL, on an exclusive basis. Management is cognisant that it does not make sense to overpay for BPL because the perceived “exclusivity” is diluted by StarHub TV cross carrying BPL. Unfortunately, the pricing has just skyrocketed with Sky and BT paying a combined £5.1b for broadcast rights to three seasons of BPL in Feb 15, representing a 70% increase from their existing £3b deal. 
  • Singtel and StarHub could jointly bid for BPL on a non-exclusive basis. However, we see StarHub as a reluctant partner. StarHub has survived a hiatus of six years from BPL (it cross carried BPL for the 2013/14, 2014/15 and 2015/16 seasons) without much attrition to its pay-TV subscriber base. It is probably unwilling to pay the hefty price tag, given the limited opportunity to gain more pay-TV subscribers. 
  • Launching OTT video. Singtel, Sony Pictures and Warner Bros have set up a 65:17.5:17.5 joint venture HOOQ (pronounced as hook) to provide over-the-top (OTT) video services in Asia. It delivers Hollywood blockbusters and television series and popular local content. The service was launched in the Philippines in April, Thailand in May and India in August. HOOQ is offered on a standalone basis or bundled with mobile data plans from Globe, AIS and Bharti. Management shared that the take-up for HOOQ has so far been encouraging. 
  • StarHub has also launched a new online streaming service called Starhub Go, which offers a selection of the most popular StarHub TV content on smartphones and tablets. 

ACTION 

  • Turning to telcos as a defensive shelter. We started the year with many investors complacent on the impact from potential entry of a fourth mobile operator. The share price correction of 27.3% for M1 and 17.7% for StarHub from their recent peaks has taken away the froth in share prices. 
  • Maintain MARKET WEIGHT. We are not out of the woods yet with regards to the possible entry of a fourth mobile operator. Infocomm Development Authority (iDA) plans to set aside 60MHz of spectrum (2x10MHz of 700MHz, 2x10MHz of 900MHz and 20MHz of 2300MHz) for a new entrant in the upcoming spectrum auction scheduled for early-16. Interested parties, such as Consistel and MyRepublic, have to raise funds to bid for the spectrum. They have to demonstrate experience, capabilities and financial preparedness to roll out a nation-wide mobile network. 
  • SingTel remains our top pick. We upgrade M1 and StarHub from SELL to HOLD after recent share price correction. 

M1 (Upgrade to HOLD/S$2.90/Target: S$3.08) 

  • M1 remains susceptible to regulatory risks in Singapore with mobile accounting for 78.3% of its service revenue in 2Q15. 
  • M1 has entered into an agreement to provide voice, SMS and data services on a wholesale basis to Liberty Wireless, a mobile virtual network operator (MNVO) that is scheduled to commence commercial operations by end-15. 
  • Entry price is S$2.80. 

StarHub (Upgrade to HOLD/S$3.67/Target: S$3.57) 

  • StarHub remains susceptible to regulatory risks in Singapore with mobile accounting for 56.1% of its service revenue in 2Q15. 
  • Bundling multiple services give StarHub a more resilient customer base that is less likely to be poached by competing mobile operators. 
  • Entry price is S$3.20. 

SingTel (BUY/S$4.03/Target: S$4.75) 

  • SingTel benefits from growth of its regional mobile associates Telkomsel, Bharti Airtel, Advanced Info Service and Globe Telecom. 
  • SingTel provides a hedge against regulatory uncertainties in Singapore due to its diversified exposure to overseas markets. 

SECTOR CATALYSTS 

  • Investors buying into telcos as a defensive shelter. 
  • Dividend yields have recovered after share price correction. 

ASSUMPTION CHANGES 

  • We maintain our earnings forecasts and target prices. 

RISKS 

  • Entry of a fourth mobile operator who uses low pricing to win market share.

Jonathan Koh CFA | http://research.uobkayhian.com/ UOB KH 2015-08-20
BUY Maintain BUY 4.75 Same 4.75
HOLD Upgrade SELL 3.57 Same 3.57
HOLD Upgrade SELL 3.08 Same 3.08


Advertisement



MOST TALKED ABOUT STOCKS / REITS OF THE WEEK



loading.......



ANALYSTS SAY


loading.......