SINGAPORE (Jan 14): RHB Research is maintaining its “neutral” stance on Singapore’s telecommunications sector following the launch of an “expectedly aggressive” trial offer by new mobile entrant TPG Telecom.

“TPG quashed earlier talks that it may abort its mobile rollout by launching a free 4G SIM-only data plan in Dec 2018, offering 12 months of unlimited data,” says RHB’s Singapore research team in a report on Monday. “We expect competition to remain elevated on the recent trial launch.”

However, RHB believes the proof of the pudding would be whether TPG’s network could match the vastly superior 4G networks of the incumbents.

RHB notes that TPG in July last year reported cash capex of only $66.7 million for its mobile rollout in Singapore – far below its guidance of $200-300 million made in late 2016 for outdoor coverage.

“This has raised doubts as to its ability to meet the roll out conditions set by the Info-communications Media Development Authority (IMDA),” says RHB. Ultimately, the research house says, TPG’s network strength compared to the incumbents’ would also define end-user experience.

According to RHB, the incumbent operators have also introduced numerous data-upsized packages, recontracted subs on new handset bundles and forged strong collaborations with mobile virtual network operators (MVNO) over the past 12 months to pre-empt fresh competition.

“We believe this has disrupted TPG’s go-to-market strategy, necessitating a review [partly explaining the delay in TPG’s launch]. As all three incumbents are utilising MVNOs to ‘hedge’ against market share losses, TPG would have less room to manoeuvre and grab market share,” RHB explains.

RHB says its top pick for the sector is Singapore Telecommunications (Singtel), on the back of its earnings diversity and dividend certainty.

RHB has a “neutral” call on Singtel with a target price of $3.22, representing an upside of 5.6%.

As at 1.18pm, shares in Singtel are trading 4 cents lower, or down 1.3%, at $3.01. This implies an estimated price-to-earnings ratio of 15.9 times and a dividend yield of 6% for FY19.

Meanwhile, RHB says the takeover offer for M1 by major shareholders Keppel Corporation and Singapore Press Holdings is likely to become unconditional, and advises investors to accept the $2.06 per share offer.