SG Telcos

SG Telcos: Following M1’s generous payout, HSBC highlights Starhub and SingTel’s financially capable for potential dividends. In Starhub’s context, a consistent 20¢/share annual dividend plus gradual de-leveraging that has led to an underleveraged net debt/EBITDA ratio of 0.6x. For net debt/EBITDA to hit comfort level of 1.5x, HSBC estimates an annual dividend increase of 1.2x for 5 years. This also implies an est. 2014 dividend yield of 6.5% (vs current estimate of 5.4%) For SingTel, HSBC forecasts an 85% payout vs SingTel’s normal 55-70% commitment. On that front, if HSBC assumes an increase to 85% every three years, even a100% payout would not stretch the balance sheet. A 100% payout would increase the estimated FY14 dividend yield to 6.4%, up from HSBC’s estimate of 5.5%. On the M1 front, Deutsche highlights data monetization and reduction in handset subsidies will remain key themes in 2014, and remains Deutsche’s top pick in the Singapore telco sector Deutsche said that there is significant potential for an accelerating ARPU momentum, supported by further re-contracting, the recent doubling of excess data charge and greater LTE (and beyond 2014, LTE Advanced) adoption. Deutsche also thinks that industry conditions are increasingly conducive for a further pullback in handset subsidies, which, if executed successfully, should have a significant positive impact on mobile margins. Increasing competition amongst leading handset vendors will also keep pricing in check. Latest broker ratings M1: Deutsche maintains a Buy with increased TP of $3.82 from $3.72, but HSBC rates an U/W with TP:$ 2.94 Starhub: HSBC rates U/W with TP $4.40 SingTel: HSBC rates Neutral with TP $4.02