CFA Society Singapore
SINGAPORE (Sept 11): OCBC Investment Research is maintaining its “neutral” stance on Singapore’s telco sector in anticipation of an intensifying competitive landscape with the impending entry of TPG Telecom, the fourth mobile entrant, which expects to commence operations in 2018.
In a Monday report, lead analyst Eugene Chua recalls how all three telecommunications service providers (telcos) had reported weaker earnings results over the latest quarter, as their mobile segments continued to be impacted by intense competition and the increasing adoption of over-the-top (OTT) services.
Nonetheless, all three telcos reported results that came in-line with the research house’s estimates for the period.
Further, Chua is expecting a 14-20% decline in mobile average revenue per unit (ARPU) over the next five years due to the impending entry of TPG Telecom, coupled with competition from mobile virtual network operator (MVNO) Circles.Life. as well as local fibre broadband operator MyRepublic, which also plans to launch mobile services in Singapore this year.
“The intensifying competition is evident when both Starhub and M1 recently launched aggressive campaigns targeted at data-hungry customers by offering plans with unlimited data allowances. In our view, both telcos are likely taking actions to try to gain or at least retain their market (i.e. to lock-in as many new customers on new contracts as possible) before more players enter the space,” says the analyst.
Chua has thus maintained a “sell” call on Starhub with a lower fair value estimate of $2.30 from $2.40 previously on weaker mobile earnings pending further clarity over the ramp-up of its enterprise business.
Meanwhile, M1 has been upgraded to “hold” with a lower fair value of $1.65 from $1.75 previously following a steep correction in the telco’s share price.
The analyst’s top telco pick is therefore Singtel. Chua reiterates his “buy” call on Singtel, albeit with a lower fair value of $4.19 from $4.25 previously after accounting for the disposal of NetLink Trust (NLT). He continues to like the stock for its diversified portfolio and increasing exposure to the growing information and communications technology (ICT) space.
“Based on the 1H17 results, 55% of Starhub operating revenue and 88% of M1 revenues are derived from Singapore’s mobile segment. Hence, the increasing competitive landscape will impact them more significantly than Singtel, which only has an effective exposure to Singapore’s mobile segment of 4% of its 1QFY18 total revenue,” concludes Chua.
As at 1.18pm, shares in Singtel, Starhub and M1 are trading at $3.68, $2.63 and $1.80 respectively.