Assuming most new users will take up the cheapest plan, we estimate handset subsidies will be significantly lower this time round, e.g. $150 for the 16GB 3GS model vs $505 for the 16GB 3G model, as Apple has cut the price by US$100 but SingTel is actually charging more for the 3GS model ($548) compared to the 3G model ($508). However, it is a trade-off as the monthly fee for the cheapest plan is also lower than before.
Typically, carrier margins would be hit if iPhones outsell other handsets as subscriber acquisition costs would soar in the product launch quarter, and contrary to expectations, worldwide demand for iPhone 3GS has not waned. Apple reported 1 million sets sold in the first weekend, the same as 3G. However, due to the estimated lower subsidy, we expect SingTel to maintain its FY10 EBITDA margin guidance of 36-38% when it reports 1Q10 results, which we reckon has already considered the new iPhone, and there may be upside if the economy improves further, unless content costs run out of control.
On the M&A front, Bharti is expected to complete its due diligence on MTN by end-July. The deal is reported to have the support of the Indian government. In addition, the Australian dollar andIndonesian rupiah have continued to strengthen in 1Q10. Optus and Telkomsel contribute about 15% and 18% of SingTel’s pretax profit, respectively.
We have updated our SOTP model incorporating our latest forecasts and market values for the listed associates, and derived a SOTP value of $3.35. Hence, we maintain our BUY recommendation.
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