SINGAPORE (Apr 30): Following the awarding of 5G licences to Singtel, StarHub, and M1 by the Infocomm Media Development Authority (IMDA) on April 29, analysts from DBS Group Research and OCBC Investment Research are recommending investors to “buy” shares from StarHub, Singtel, and NetLink NBN Trust respectively.

DBS has raised its target price on StarHub from $1.40 to $1.75;  OCBC is keeping Singtel within its list of “preferred picks”, with a target price of $3.61.

RHB is also recommending a “buy” for Singtel shares at a target price of $3.30, but remains “neutral” on StarHub, with a target price of $1.63. RHB is overall “neutral” on the whole telco sector, as it has yet to see substantial benefits from the 5G licences awarded. It expects only “incremental contributions from 5G in 2021, on progressive network expansion and device adoption”, says RHB in its April 30 report.

While the 5G wins may introduce revenue for the telcos in FY2021, investors may need to brace for lower-than-expected dividends due to increased capital expenditures (capex) in order to roll out the licences and maintain the networks.

Fitch Ratings says it expects “staggered 5G investments” with initial funds from local investors as the “3.5GHz spectrum band can only be freed up in 2021”.

In its note issued on Thursday, the ratings agency predicts a delay in returns on 5G investments due to potentially higher capex due to the costly regulatory requirement for 5G standalone networks and new core infrastructure, and the “lack of compelling use cases”.

The base price of each licence is $55 million. The actual amount to be paid for the licences are not disclosed. The actual spending on the networking infrastructure is also something to be determined between the telcos and the equipment vendors.

“If you just take a reference from what has been announced or is in the public domain based on different markets, it would not be wrong to conclude that the cumulative investments would run into billions of dollars,” says S Iswaran, the Minister for Communications and Information.

OCBC suggests that the “winning entities need to demonstrate and communicate a clear and moderate 5G capex plan to investors, thereby allaying fears of risk to dividends” especially as earnings season draws near.

DBS believes that StarHub and M1, by jointly bidding, will enjoy an edge in capex savings in FY2021-FY2026. 

RHB estimates StarHub and M1’s capex savings to be at 30%.

See also: StarHub and M1 to make joint 5G bid as expected

All three research houses believe the 5G award may bring about a “three-player market structure” with TPG Telecom (TPG) possibly losing out on the network evaluation criteria, says DBS and RHB. 

For TPG, the fourth mobile operator here, did not win a licence. In order to remain relevant, it would need to obtain 5G services from either of the three telcos, says OCBC.

All three telcos will have to roll out their 5G networks from January 2021, and nationwide 5G outdoor coverage by 2025.

 As at 4.08pm, Singtel shares are up 2 cents or 0.7% higher at $2.82; StarHub shares are up 4 cents or 2.8% higher at $1.49.

 See also: Singapore's 5G network plan a buying opportunity for telcos, analysts say