Telco sector upgraded to 'neutral' even as incumbents brace for TPG entry

Telco sector upgraded to 'neutral' even as incumbents brace for TPG entry

Stanislaus Jude Chan
03/04/18, 11:53 am

SINGAPORE (Apr 3): Maybank Kim Eng Research has upgraded the Singapore telecommunications sector to “neutral” from “negative” previously.

This comes after incumbent telcos SingTel, StarHub, and M1 saw their share prices fall by 14.2%, 20.4%, and 18.7% respectively over the last 12 months to end March. In comparison, the benchmark Straits Times Index has risen 8.0% over the corresponding period.

Meantime, the brokerage has upgraded StarHub and M1 to “hold”, from “sell” previously.

However, in a report on Monday, analyst Luis Hilado cautions it is still too early to be positive on the sector, with new mobile virtual network operators (MVNOs) and TPG Telecom expected to launch in the second half of this year.

TPG last month announced it will be launching a package aimed at senior citizens. For the first 24 months following its launch, senior citizens aged 65 and above will enjoy – for free – a package which includes a SIM card, 3GB of monthly data and unlimited local calls.

“Regardless of the fact that TPG’s segment is niche and that the full mechanics have not yet been revealed, we believe the market took it as a sign that TPG intends to put up a fight for share,” says Hilado. “Although TPG’s stated purpose at the onset was for only 5-6% market share, we cannot discount our worst case scenario that tariff wars ensue and a more aggressive market share grab takes place.”

“With the Singapore telcos de-rating close to levels we envisage in our base case scenario of gradual erosion in incumbents’ revenues, we upgrade StarHub and M1 in this note to ‘hold’ and our sector view to ‘neutral’,” he adds.

Following the upgrade, Maybank has “hold” calls on all three incumbent telcos, with target prices for SingTel, StarHub, and M1 at $3.69, $2.27, and $1.63, respectively.

SingTel remains Maybank’s preferred pick in the sector. “Singtel’s geographically diversified structure offers relative resilience to Singapore risks but it also faces potential competitive challenges in its other major markets,” Hilado says.

As at 11.38am, shares of SingTel are trading 3 cents down at $3.36; shares of StarHub are trading 1 cent down at $2.32; and shares of M1 are trading flat at $1.75.

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