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Analysts stay positive on incumbent telcos even as TPG rolls out commercial launch

Stanislaus Jude Chan
Stanislaus Jude Chan • 3 min read
Analysts stay positive on incumbent telcos even as TPG rolls out commercial launch
While TPG has signalled its intention to target three key groups on the back of its $10 a month SIM-only plans, DBS analyst Sachin Mittal opines that the telco is likely to see limited success.
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SINGAPORE (Apr 1): TPG Telecom on March 31 rolled out its long-awaited commercial launch, unveiling a SIM-only plan at $10 a month for 50GB of data.

But market watchers are far from worried that the newcomer will have an adverse impact on incumbent telcos Singapore Telecommunications and StarHub as well as fibre network infrastructure provider NetLink NBN Trust.

“TPG has acknowledged its current lack of adequate coverage in underground MRT tunnels. As we understand, TPG’s voice-call experience is also sub-optimal due to the lack of a 3G network to plug the gaps in its newly-built 4G network,” says Sachin Mittal, an analyst at DBS Group Research, in an April 1 report.

While TPG has signalled its intention to target three key groups – parents buying a first SIM card for their children, users with a second or third smartphone device, and foreign workers – Mittal opines that the telco is likely to see limited success.

“TPG might appeal to a niche market of consumers who use a second or third smartphone device to stream video outdoors,” Mittal says.

However, he adds that parent have other options, such as MyRepublic, which offer similarly cheap plans, but with “superior network coverage and voice-call experience”.

And while foreign workers may be swayed but TPG’s low prices, Mittal says they are likely to only be won over by telcos with an extensive distribution network.

“Many foreign workers are not digitally savvy, and they need to be guided by the local distribution agents in making the purchase. Building a local distribution network on the ground takes a lot of time and cost, which we think it will be a challenge for TPG,” the analyst says.

“In addition, there are various documents required on top of an initial deposit for foreign workers to be eligible for the postpaid plans,” he adds.

DBS is keeping its “buy” calls on all three telecom sector stocks – Singtel, StarHub and NetLink Trust – with target prices at $2.85, $1.40 and 95 cents, respectively.

“Netlink is our top pick for 5.8% yield,” Mittal says. “We also like Singtel for around 5.8% dividend yield and StarHub for around 7.0% yield.”

Meanwhile, CGS-CIMB Research is maintaining its “add” call on Singtel, after the group announced March 27 that video-streaming service HOOQ Digital has filed for liquidation.

“We view this development positively, as it has always been difficult for HOOQ to succeed in the market given the plethora of video-streaming applications – such as Netflix, Viu, and Disney+ – and widespread piracy in Asia,” says lead analyst Foong Choong Chen in a March 31 report.

While Singtel will likely have to provide a one-off impairment for its HOOQ investment, Foong estimates that the liquidation will remove a net loss of $85 million from Singtel’s profit and loss statement.

Meanwhile, Foong is also bullish on news that Singtel is looking to sell Optus’ towers in Australia, which may be worth some $1.8 billion.

“If true, we view this new development positively,” Foong says. “After spending heavy capex in Australia in FY2015-2018 to improve its 4G network and rollout regional coverage to better match Telstra, the tower sale proceeds could help to pare debt and fund Optus’s 5G network rollout, without further burdening the balance sheet.”

However, the analyst is cutting Singtel’s core earnings per share forecasts for FY2020-2022 by 2-4%. As a result, CGS-CIMB is lowering its target price for Singtel to $3.40, from $3.70 previously.

As at 4.54pm, shares in Singtel are trading 1.2% down at $2.51, shares in StarHub are trading 0.8% higher at $1.34, and units in NetLink Trust are 2.2% lower at 88.5 cents.

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