Local telco incumbents 'clearly have an edge' over new entrant at this juncture, says Maybank

Local telco incumbents 'clearly have an edge' over new entrant at this juncture, says Maybank

By: 
Michelle Zhu
07/02/19, 11:00 am

SINGAPORE (Feb 7): Maybank Kim Eng is keeping “neutral” on Singapore’s telco sector on the belief that incumbent telcos have an edge in terms of subscriber in retention amid a “proliferation of new MVNOs (mobile virtual network operators)” as well as new mobile network operator TPG Telecom.

This comes post the research house’s survey of 150 telcos subscribers, out of which 81% said they stuck to their providers for more than 24 months.

NetLink NBN Trust remains Maybank’s top “buy” pick with a target price of 93 cents, given its virtual monopoly of residential fibre connections.

The research house has a “buy” rating on StarHub with a target price of $2.21.

In a Thursday report, analyst Luis Hilado says the survey results supports his view that churn and potential 100% loss-of-revenue-risks appear limited for Singapore’s telco incumbents, even as the sector lacks immediate catalysts.

“Rather than actual churn risks, we believe the threat to the telcos continues to come from yield erosion e.g. intact prices but more data allocation with no lock-up contracts. We currently assume a -2% CAGR for incumbent wireless revenue for 2018E-21E, reflecting yield pressure and not churn-based wars,” says Hilado.

Noting that most survey respondents appear to value wireless data allocation and/or pricing, network quality and handset discounts the most, the analyst says he does not expect TPG Telecom to resort to aggressive handset subsidies.

As such, he believes telco incumbents “clearly have an edge” over TPG in the first two most-valued categories.

“The incumbents themselves are now directly in the fray and not just using their MVNO partners to participate in SIM-only, wireless-data-focused wars. Once TPG unveils its commercial launch plans and the market adjusts, there may be room for stability,” he adds.

As at 11am, shares in NetLink NBN Trust and StarHub are trading at 78 cents and $1.87, respectively.

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