CFA Society Singapore
SINGAPORE (Jan 2): UOB Kay Hian has downgraded its view on Singapore’s telco sector to “market weight” from “overweight” in anticipation of intense competition from TPG Telecom.
The move comes as the fourth mobile entrant launched its trial service in Dec 2018 at “mind-blowing pricing” which incumbents would eventually be forced to match, in the research house’s view.
To recap, TPG is now offering one year of free wireless unlimited data and voice SIM-only plans for the first 20,000 pre-registered subscribers who participate in the trial, with the first 2GB of everyday data offered at 4G speed – after which the speed is capped at 1Mbps for the remainder of the day.
In a Wednesday report, UOB analyst Jonathan Koh says he expects TPG to be disruptive due to its no-frills pricing, which comes on the back of its lean cost structure. With the telco to launch full commercial service in 2Q19, he sees competition intensifying by mid-2019 and TPG to gain a market share of about 8.7%.
As such, the forecasts incumbents’ postpaid average revenue per user (ARPU) to decline by 31% over the next three years, which is significantly higher than his previous projection of a 23% decline.
“Unlimited data plans ensure that [TPG] customers’ monthly outlays for mobile are fixed and customers do not have to worry about bill shock. Data speed of 1Mbps is insufficient for streaming of high definition videos. However, customers can still listen to music, browse the web and access social media with ease. TPG’s customers do not have to worry about paying excess data charges,” he notes.
Koh’s top sector pick is NetLink NBN Trust for its dominant market share in terms of fibre connections – with TPG being a customer of NetLink as well – followed by Singtel as a defensive telco play due to its geographical diversification.
Both stocks are rated “buy” with target prices of 99 cents and $3.58, respectively.
The analyst has however downgraded his call on StarHub to “sell” with a target price of $1.60, as he believes the group will be deeply affected by the entry of TPG as the fourth mobile operator.
“Mobile accounted for 46.5% of [StarHub’s] service revenue in 3Q18. We cut 2019/20/21 earnings by 6.4%/17.3%/29.9% as price competition is expected to be intense and prolonged,” says Koh.
Likewise, Maybank Kim Eng highlights NetLink as its preferred pick among Singapore telcos as it remains “neutral” on the sector.
In its report on Monday, the research house’s analyst Luis Hilado highlights Netlink as a “residential fibre backbone monopoly”, rating it “buy” with a target price of 93 cents.
As at 11.38am, shares in NetLink, Singtel and StarHub are trading at 76 cents, $2.88 and $1.73, respectively.