Resilient 1Q09 results as expected. All the three telcos - MobileOne (M1), SingTel and StarHub - reported a pretty resilient set of results recently. M1's 1Q09 earnings were slightly ahead of our forecast but that was mainly due to an one-off tax credit; EBITDA margin also improved due to slight easing in competition. SingTel's 4Q09 earnings were much better than expected, aided by a strong domestic market performance. StarHub's 1Q09 earnings were within expectations, but the boost came from lower taxes; its mobile business recorded a mild decline.

Review of operations. On the mobile front, we note that the recession has impacted consumer spending in the March quarter; this has led to a decline in mobile post-paid ARPUs. And in line with the weaker demand, most of the telcos have further scaled back their acquisition costs; the exception being SingTel, which clocked in at S$290 / customer, up QoQ but down YoY. And in terms of market dynamics, we see that M1 has continued to lose post-paid market share, which does not come as a surprise, given its lack of bundling abilities. On the broadband front, the net additions for both SingTel and StarHub have slowed, partly due to the economic slowdown and also the saturation in the market, which has now hit 109.5% (up from 99.9% in 4Q08). And while StarHub managed to add more customers, we note that its ARPU has been declining, whereas SingTel's ARPU hasmanaged to remain quite stable.

Stable outlook for 2009. Going forward, all the three telcos expect their Singapore operations to remain stable or show slight growth, with EBITDA margins remaining relatively steady; this as they strive to reduce costs to keep pace with the expected softening in operating revenue. But due to their strong cashflow-generative businesses, the telcos have largely kept their dividend payout guidance; M1 to pay at least 80% of underlying net profit; SingTel to pay 45-60% of underlying earnings; StarHub to pay S$0.18/share, or S$0.045/share per quarter.

Maintain Overweight. Although there has been a steady switch into high-beta stocks on hopes of a rapid recovery in both the economy and corporate earnings, we are not entirely convinced. And until we see more concrete signs of a rapid recovery, we would still advocate holding on to these defensive counters for their attractive dividend yields and as a means of diversification. Maintain Overweight.