DBS Group Research believes that the mobile sector is prime for a consolidation in 2022 or earlier. 

In a telecommunications sector report on June 9, analyst Sachin Mittal finds three reasons for this sector consolidations: (i) David Teoh, founder of TPG Telecom has resigned from TPG Australia in March 2021 and is likely to focus on TPG Singapore, where he holds about 37% stake. (ii) With 5G services projected to have 58% market share in 2025, TPG’s 4G network might become less relevant in two to three years (ii) M1 is divesting its network assets to a Special Purpose Vehicle (SPV), which could potentially buy more network assets.


See also: How telco stocks will perform this year: JP Morgan


On top of that, Mittal sees a recovery underway in 2H2021 for mobile service revenues, following a disappointing 1Q2021 due to continued weakness in business travel, tourism, and intense competition.

"We expect sequential recovery in the second half of 2021 and further recovery in 2022. Mobile service revenue in Singapore could decline by another 5% in 2021 (after a 23% decline in 2020) and register 6% growth in 2022, led by recovery in roaming, prepaid revenue, and growth of premium 5G services.," says Mittal. 

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Overall, the analyst prefers Singtel among the telco players, as the stock offers annual earnings growth of 13% over FY2021-2023 with a 3.6% yield. Singtel’s underlying earnings are expected to benefit from a stabilising core business (4% decline in FY2022 core EBITDA after 16% decline in FY2021), and about $300m rise in post-tax earnings contribution from Bharti (compared to a $13 million rise in FY21). Singtel could also unlock potential value from partially divesting infrastructure assets. 


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DBS Group Research has a "buy" call on Singtel with a target price of $3.01.

As at 11.15pm, shares in Singtel are trading at $2.34.

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