M1

While some impact of MNP-based competition continued to be felt in 4Q08, with M1 suffering a 1.4% QoQ decline in airtime revenue, revenue was still firm enough to meet our FY08 forecast. More importantly, acquisition and retention costs are already declining after peaking in 2Q08 (MNP launch), resulting in 4.5% QoQ EBITDA growth, and M1 exceeded our FY08 EBITDA forecast.

While we continue to see competitive/regulatory factors as the key drivers of telecoms earnings, the industry does not operate in a vacuum. Our economist’s recent downward revision in GDP forecasts, to a contraction of 2.8% in FY09, leads us to revisedown our FY09 revenue, EBITDA and net profit forecasts by 3.6%, 2.4% and 3.3%. We have cut our DCF-based target price by 3.2% from S$2.48 to S$2.40.

Looking into the medium term, structural drivers look to be positive as M1 remains the key beneficiary of the NGN rollout. With relatively defensive earnings, a 12.5% FY09 cash flow yield and a 10.4% FY09 dividend yield, we rate the stock OUTPERFORM.

Singtel

M1’s 4Q08 earnings figures, released on Friday, 16 Jan after market, suggested that the brief intensification of competition in 2Q08-3Q08 surrounding the launch of MNP and the iPhone is already winding down. M1 reported falling acquisition and retention costs, and rising EBITDA margins.

While we continue to see competitive/regulatory factors as the key drivers of telecoms earnings, the industry does not operate in a vacuum. Our economist’s recent downward revision in GDP forecasts, to a contraction of 2.8% in FY09, leads us to revise down our FY3/10 SingTel cellular revenue and EBITDA forecasts by 3.1% and 3.6%, and our fixed line forecasts by 2.5% and 3.0%.

However, SingTel continues to enjoy geographical diversification. While our Singapore cellular DCF declines by 4.1%, and our fixed- line DCF declines by 3.7%, our consolidated DCF-based sum-of- the-parts valuation declines by only 0.8%, from S$3.55 to S$3.52.

Thus we continue to view SingTel as a defensive alternative to domestic Singapore stocks. OUTPERFORM rating maintained.

Starhub

M1’s 4Q08 earnings figures, released on Friday, 16 Jan after market, suggested that the brief intensification of competition in 2Q08-3Q08 surrounding the launch of MNP and the iPhone is already winding down. M1 reported falling acquisition and retention costs, and rising EBITDA margins.

While we continue to see competitive/regulatory factors as the key drivers of telco earnings, the industry does not operate in a vacuum. Our economist’s recent downward revision in GDP forecasts, to a contraction of 2.8% in FY09, leads us to revise down our FY09 revenue, EBITDA and net profit forecasts by 4.2%, 3.5% and 5.6%. We have cut our DCF-based target price by 4.6% from S$2.38 to S$2.27.

We continue to highlight that StarHub is most vulnerable telco on medium-term secular factors (such as the impact of the NGN on legacy cashflows, and the prospect of SingTel as a new bidder for Pay TV content). However, earnings stability relative to other sectors warrants a NEUTRAL rating.