Local telcos may see a positive surprise in 2019: DBS

Local telcos may see a positive surprise in 2019: DBS

Samantha Chiew
20/12/18, 12:41 pm

SINGAPORE (Dec 20): DBS has an “overweight” rating on Singapore’s Telco stocks as TPG’s abysmal capex so far implies room for positive surprise in 2019.

TPG has so far spent A$66.7 million ($65.7 million) in cumulative capex on its Singapore roll-out, about 22-32% of its planned S$200-300 million of capex.

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

Mittal estimates that StarHub, the second largest operator in Singapore, is likely to have spent over $600 million on its 4G network since 2013, almost 10 times of the current capex spend of TPG on its 4G network.

Netlink NBN Trust (NLT) is DBS’ top “buy” pick with a target price of 87 cents. The trust is trading at about 6.5% FY19F yield, similar to large-cap industrial S-REIT’s average yield.

“We argue that NLT should trade at a tighter spread than S-REITs as NLT’s distributions, due to the regulated nature of its business, are largely independent on the economic cycle, NLT’s gearing is less than half of S-REITs’ with ample debt-headroom to fund future growth,” says Mittal.

NLT has hedged its interest rates till Mar 2021 and its one unique advantage over REITs and Business Trusts is that potential rise in the cost of capital might lead to higher regulated returns from 2022 onwards, translating into higher distributions.

One catalyst for the trust would be StarHub’s accelerated migration to fibre networks. StarHub plans to migrate all of its subscribers to fibre by July 2019, compared to the earlier expectations of 2020.

At this point, the analyst estimates an annual contraction of 5% for the mobile sector next year, with mobile service revenues expected to decline about 4.5% over 9M18, driven by postpaid ARPU due to SIM-Only plans and contractions in legacy usage.

The commercial launch of TPG’s services in 2Q19 is also expected to have an effect on the mobile sector, but if TPG faces serious network quality issues, incumbents may not hesitate from raising the pricing, implying room for positive surprise.

The research house also finds StarHub attractive for its -2SD valuation and potential upside to street FY19/20 earnings.

The street’s FY19 earnings are likely to be raised by at least $10 million on the absence of $10- 15 million amortisation cost for 700MHz spectrum. Consensus is also ignoring the approximately $30 million savings on operating lease expenses in FY20 with the shutdown of StarHub’s co-axial cable network.

“The street’s FY19F earnings are edging up and we expect to see more upward revisions going forward,” says Mittal.

Meanwhile, Singtel is also attractive for its -1SD valuation and rebound in its associate contributions from FY20 onwards, led by Telkonsel, AIS and Globe despite delay in Bharti’s recovery

Some of the risks to the analyst’s rating on the local telco sector includes significant capex outlay by TPG in 1H19 and less-than-expected cost-cutting from the local telcos.

Living it up

SINGAPORE (Mar 25): This is the season for indices. On March 20, Singapore was ranked 34th in the World Happiness Index — less happy than Taiwan, but far more cheery than Hong Kong and China, as well as its neighbours, Thailand, Malaysia and Indonesia. Globally, the Scandinavian and north European cities top the index; and New Zealand, Canada and Austria round out the top 10. The index this year focuses on happiness and the community, taking into account how happiness has evolved over the years, as affected by technology, social norms, conflicts and government policies. A week earlier, th....

The charismatic bankrupt who allegedly pulled the strings behind Singapore's largest stock manipulation scandal

SINGAPORE (Mar 26): Garbed in purple overalls, John Soh Chee Wen cuts a relaxed figure as he takes his seat. The garment falls fittingly on his athletic frame, not unlike a designer suit. It could well have made a fashion statement, save for the word "prisoner" emblazoned in white across the back. As his legal team huddled around him before the start of the trial, the 60-year-old is a picture of calm. At one point, he casually flashes a thumbs up at his lead counsel, N Sreenivasan, a managing director and senior counsel at Straits Law LLP. Then, as he turns back to his seat in the dock, ....

OCBC still bullish on banking stocks after a lacklustre FY18

SINGAPORE (Mar 26): OCBC Investment Research remains bullish on Singapore’s banking space while keeping its sector “overweight” with “buy” calls on both DBS and UOB, which have been given fair value estimates of $29.31 and $28.30, respectively. Both stocks had dividend yields of 4.8%, with DBS and UOB trading at the respective book values of 1.3 times and 1.1 times, or at an average of 1.2 times historical book as at the close of Wednesday. In a Tuesday report, OCBC analyst Carmen Lee notes that raising this average to 1.3 times book and factoring a 10% premium for DBS over the....