SINGAPORE (Nov 23): DBS Group Research is keeping its “buy” calls on Netlink NBN Trust, Singtel and StarHub, amid “abysmal capex” spent so far by new entrant TPG Telecom.

“At the current level of capex spend, TPG’s network at commercial launch in 2Q19 is unlikely to pose a major threat to the incumbents, in our view, due to potential network quality issues,” says analyst Sachin Mittal in a Wednesday report.

“Network quality issues would make it difficult for TPG to lure low-end subscribers, who already enjoy much better network quality and coverage through Mobile Virtual Network operators (MVNOs) that ride on the incumbents’ mobile networks,” he adds.

According to Mittal, TPG has so far spent $65.7 million in cumulative capex on its Singapore rollout, which is less than a quarter of its planned capex of $200-300 million. In comparison, he estimates that StarHub, the second largest operator in Singapore, is likely to have spent over $600m on its 4G network since 2013.

“We are of the view that to become a disruptive market player in Singapore, TPG would need to significantly ramp up its rollout capex to provide ubiquitous coverage,” Mittal says. “While TPG is likely to meet the outdoor coverage requirements by 2018, the quality of the outdoor network is likely to be poor with patchy and inadequate coverage inside buildings and MRTs given its current capex spend.”

As such, DBS is keeping its positive outlook on the incumbents in the telco sectors.

“Netlink [Trust] is our top pick in the sector and is attractive for its 6.6% yield,” says Mittal. “We argue that NLT should trade at a tighter spread than S-REITs and is likely to benefit from front-loading of revenue from StarHub’s accelerated fibre migration.”

DBS has a “buy” call on Netlink Trust with a target price of 87 cents.

Units in Netlink Trust closed flat at 77 cents on Friday.

“We like StarHub for its 5.6% yield, -2SD valuation and 6%/27% upside potential to consensus FY19F/20F earnings,” says Mittal.

DBS has a “buy” call on StarHub with a target price of $2.45.

Shares in StarHub closed 1 cent lower at $1.87 on Friday.

“We also like Singtel for its assured DPS of 17.5 cents (implying 5.7% yield) and -1SD valuation,” the analyst adds.

DBS has a “buy” call on Singtel with a target price of $3.59.

Shares in Singtel closed 2 cents higher at $3.12 on Friday.