SINGAPORE (Jan 9): Singtel is RHB’s preferred telco pick as its revenue and earnings exposure to the domestic market is markedly lower compared to its rivals and should be relatively shielded from the shift into a four-player market.

RHB says Singtel’s regional mobile assets should continue to be the key earnings driver, underpinned by strong data growth and smartphone adoption. Singtel’s premium valuations also reflect the group’s significant market capitalisation and exposure to higher yielding regional assets.

“Maintain Neutral on heightened competition in Australia and India,” says the research house in its 2017 Singapore Strategy report.

According to RHB, Singtel would be the least impacted from the entry of a fourth operator in the market as over two-thirds of the group’s EBITDA comes from outside Singapore.

But Singapore consumer EBITDA -- where its mobile segment is parked -- made up some 11% of overall group EBITDA for 1HFY17 ended March.

“We gather the response to its data upsized plans – Data X2 (introduced in Mar 2016) and more recently, Data X3 – has been good,” says RHB, “We believe Singtel is well positioned to fend off competition from the new entrant, which will take some time to roll out its network.”

While overall industry mobile revenue contracted 2% y-o-y in 9M16, Singtel’s mobile service revenue trumped its peers, posting a marginal 0.9% decline vs StarHub’s and M1’s 3-4% contraction

Meanwhile, regional associates remain the bright spots. Contributions from regional mobile associates rose 7% y-o-y in 2QFY17 and 11.5%y-o-y in 1HFY17, led by Telkomsel and Bharti Airtel’s 22% and 13% increase.

“We expect both operating companies (OpCos) to remain the key earnings drivers for the group going forward, supported by strong data revenue growth in the respective markets,” says RHB.

In addition, Singtel is well poised to capitalise on the opportunities in the enterprise space. It is a major player in the smart nation initiatives in Singapore and Australia (via Optus).

Group enterprise revenue would be supported by the cyber security business (Trustwave), government infrastructure projects and on-boarding of government agencies on the G-cloud platform, which should more than offset the decline in legacy carriage revenue.

Shares of Singtel are trading 2 cents higher at $3.76.