CGS-CIMB is keeping its “add” recommendation on Singtel with a target price of $3.10 after the research house hosted a virtual investor meeting for Singtel with Malaysian investors on September 8.

In a September 11 report, lead analyst Foong Choong Chen says, “Overall, our impression is that the near-term earnings outlook is challenging due to Covid-19 (roaming and Enterprise) and the still-tight mobile competition in SG and Australia, though 5G may help in the longer-run.”

The mobile SIM-only space has been experiencing intense competition, and Singtel said it is starting to stabilise as there have been no major sub movements to TPG’s network, while mobile virtual network operators have not gained much new subs traction.

But with the launch of 5G, Singtel is keeping positive that it may bring back some price stability, as it and StarHub are charging a $10 premium (with extra quota) in the current 5G trial service.

To recap, Singtel on September 1 launched its 5G services to its customers. Although it launched two weeks after StarHub, it claims to offer higher speed. Some 20,000 Singtel customers will get to enjoy faster and smoother connectivity for free, along with a 10GB local data for a trial period of three months.

See: Singtel launches 5G network; offers speed of over 1Gbps on 3.5GHz

In addition, TPG will need to buy wholesale capacity when 5G commercial service is launched in 2021, which could lead to more rational pricing.

“In the near-term, Singtel’s average revenue per user (ARPU) will stay under pressure by lower roaming, but ARPU has been quite stable at the local service level,” says Foong.

Over in Australia, Optus says that it will be holding its prices for the rest of 2020 given subs’ financial hardship due to Covid-19, despite peers raising prices.

Telstra raised prices across most of its plans by A$5/month from 1 Jul due to 5G, while Vodafone launched a new A$35/month SIM-only plan with 50GB in August (rising to A$45/month after 12 months, comparable to Optus 60GB A$49/month plan). While aggressive, Optus thinks this may be a tactical offer (ends on September 22) and that Vodafone-TPG will ultimately focus on deriving synergies from their merger.

On the other hand, Singtel’s divestment of Optus tower is not far off.

“Singtel has engaged advisors for a potential Optus tower sale. While still in the preparation stage, we believe a tender may be called in the next few months,” says Foong.

The Australian Financial Review reported in March 2020 that the towers may be worth at least A$2 billion ($2 billion).

Singtel said potential proceeds may be used to fund 5G capital expenditure (capex) and pare down debt, though the analyst reckons a small special distribution per share (DPS) of 2-4 cents – assuming 20-30% of $2 billion – is also possible.

As for the IPO of Amobee and Trustwave, these are still being considered and are likely to not happen in 2020 or 2021, as earnings are still not at optimal levels.

As at 11.45am, shares in Singtel are trading at $2.23 with a 3.3% FY21 dividend yield.