SINGAPORE (Mar 20): UOB Kay Hian has downgraded M1 and StarHub to “sell” after fourth mobile operator TPG Telecom on Monday fired its first salvo with a package aimed at senior citizens.

For the first 24 months following its launch, senior citizens aged 65 and above will enjoy – for free – a package which includes a SIM card, 3GB of monthly data and unlimited local calls.

According to a forecast by UOB Global Economics & Markets Research, the age group would make up 27% of Singapore’s resident population in 2030, more than doubling from 13% in 2016.

“TPG’s attractive package for senior citizens with services free for the initial 24 months signals that it intends to utilise low pricing as a lever to gain market share,” says analyst Jonathan Koh in a Tuesday report. “The introduction of free services will intensify price competition.”

TPG says it is on track to deliver mobile services on its 4G network by the second half of this year.

“We maintain our defensive stance on the telco sector as we brace ourselves for the impending entry of TPG as the fourth mobile operator,” says Koh. “The best time to bottom fish in the telco sector would be the second month after TPG’s launch.”

According to Koh, the brokerage’s previous studies have shown incumbent telcos to underperform prior to entry by a new entrant.

“We expect M1 and StarHub’s share prices to experience significant volatilities ahead of the commercial launch by TPG due to their reliance on the Singapore market,” he adds.

UOB has cut M1 and StarHub to “sell” with lower target prices of $1.60 and $2.25, respectively.

In 4Q17, M1 and StarHub saw their mobile businesses in Singapore account for 76.7% and 52.6% of their service revenues, respectively.

“Singtel provides a defensive shelter due to its geographical diversification. The mobile business in Singapore accounts for only 7% of group revenue if we include its proportionate share of associates’ revenue,” Koh says.

UOB has a “buy” call on Singtel with a target price of $4.40.

Meanwhile, Koh says NetLink NBN Trust will benefit from the successful launch of TPG as Singapore’s fourth mobile operator as it provides NBAP connections for TPG’s backhaul transmission network.

“NetLink NBN Trust monopolises the provision of wholesale fibre connections for residential premises, which provides 78% of its revenue,” says Koh. “NetLink provides resilient dividend yield of 5.9%.”

UOB has a “buy” call on NetLink Trust with a target price of 93 cents.

As at 4.08pm, shares of M1 are trading flat at $1.79; shares of StarHub are trading 2 cents down at $2.41; shares of Singtel are trading 1 cent down at $3.47; and units of NetLink Trust are trading half a cent up at 82.5 cents.

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