CFA Society Singapore
SINGAPORE (Jan 12): UOB Kay Hian has turned defensive on the telco sector as channel checks indicate TPG Telecom's network deployment is progressing smoothly and is on track for its year-end commercial launch.
Singapore has attracted a slew of startups offering mobile services based on the mobile virtual network operator (MVNO) model which usually targets niche and customised segments.
Circles.Life launched its commercial services hosted by M1 in May 16. Zero Mobile launched commercial services in December. MyRepublic, who lost out to TPG Telecom in the race to become the 4th mobile operator, is currently conducting trials and plans to launch MVNO services in March 18.
"The cumulative impact of three new MVNOs could create some headaches and headwinds for the incumbents," says analyst Jonathan Koh in a Friday report.
UOB is therefore calling a "buy" on Singtel (target: $4.53) due to its geographical diversification and growth from Indonesia, India and Thailand. While yield-oriented investors should consider NetLink NBN Trust (target: $0.93).
"Downgrade sector to 'market weight'," says Koh.
TPG became the 4th mobile operator in Singapore when it secured 20MHz of 900MHz and 40MHz of 2300MHz spectrum at a winning bid of $105 million during the new entrant spectrum auction in December.
It subsequently secured another 10MHz of the 2,500MHz spectrum at a cost of $23.8 million during the auction in April 17. TPG has already awarded contracts to key vendors and work is underway to roll out its radio network, data centres and core & backhaul networks in Singapore.
However, TPG faces daunting challenges on the ground. It has to secure roof-top space to install an estimated 3,000 base stations by end 2020 and has to roll out its own common antenna systems (CAS) at commercial buildings, such as retail malls, office towers and industrial buildings.
"Our channel checks suggest that TPG’s network deployment has progressed smoothly. It is on track for the launch of commercial services and to meet requirements for nationwide coverage by Dec 18," says Koh.
Shares in Singtel are trading at $3.62 or 14 times FY18 earnings while units in NetLink NBN Trust are trading at 84 cents or 46 times FY18 earnings.