Telecom Sector - DBS Research 2016-03-10: MyRepublic discloses its data plans – four key questions and answers

M1 LIMITED B2F.SI STARHUB LTD CC3.SI

MyRepublic discloses its data plans – four key questions and answers

MyRepublic will launch 2GB plan at $S8/month for new customers and an unlimited data plan at S$80/month if it secures spectrum in 3Q16
Targets low-end and high-end users; appeal to niche customers who want cheaper plans and don’t mind lower network coverage for a few years initially.
We estimate 24% and 12% ROI for MyRepublic, depending on the EBITDA margins. Maintain FULLY VALUED on StarHub and HOLD on M1.

MyRepublic has announced proposed local data mobile plans for the registration of interest and feedback even before the spectrum auction scheduled in 3Q16. Consumers can indicate their interest on MyRepublic’s website.
1. A 2GB plan at S$8 /month (excess data costs S$8 per GB)
2. An unlimited data plan at S$80 /month
Current and new MyRepublic broadband customers can also look forward to exclusive prices:
1. A 2GB plan at S$6 /month (excess data costs S$8 per GB)
2. An unlimited data plan at S$60 /month

For low-data users (below 2GB/month), these plans could be 60% cheaper than existing plans although for mid-end users (3GB -5GB) only 10-20% cheaper.
Its unlimited plans are also quite attractive at 36-56% discount while existing telcos do not offer unlimited plans currently.
MyRepublic is targeting the low-end and high-end users, who want cheaper plans and don’t mind lower network coverage for a few years initially.
Singtel offers 3GB SIM only plan for S$20 per month . M1 offers minimum 5GB SIM only plans for S$30 while StarHub offers 3GB SIM only plan for S$21.50. As the average monthly usage is ~3GB in Singapore, MyRepublic will end up charging S$16 per month versus S$20 by Singtel and S$21.50 by StarHub.
For heavy users, SingTel offers 35GB capped at S$180.50, M1’s equivalent is a 20GB plan at S$125. MyRepublic’s unlimited plans are quite attractive at 36-56% discount while existing telcos do not offer unlimited plans currently.

Yes, there is a rational business case if MyRepublic can roll out the whole network at S$250m capex (as claimed by the company) and gather over 10% market share. Under these circumstances, If EBITDA margins were 20%, ROI will be 24% and if EBITDA margins were 10%, ROI will be 12%, in our estimation.

Taking into account average data usage of ~3GB currently, we assume 3GB usage per customer for MyRepublic which implies S$16 for data plans. Assuming 25% of its subscribers take up unlimited plans at S$80/month, it will bring its average ARPU close to what MyRepublic targets S$30.
Voice and SMS will be applications of data itself, thus we expect zero revenue from voice and SMS.
We assume that MyRepublic will capture 10% subscriber share in five years of its launch by 2022, as its network quality and coverage may not match those of incumbents on a nationwide basis for the few initial years. This implies 0.82m subscribers and with an average ARPU of S$30 (average data usage to rise), this translates into a revenue opportunity of S$295m.
Assuming 20% EBITDA margins (versus M1’s 40% plus with a much bigger scale currently), this will translate into S$59m EBITDA. MyRepublic targets a total capex of S$250m. Thus, the ROI on this capex will be 23.6%.
If EBITDA margins were 10%, the ROI will still be healthy at 11.8%.

Not yet as there will spectrum auction in 3Q16.
First of all, MyRepublic needs to secure S$150m of equity funding while the rest can be vendor-financed. Publicly, MyRepublic has announced only S$23m funding so far but is looking to close another round soon.
It may also face some competition from Consistel who has not participated in the HetNet trail in Jurong giving MyRepublic an edge in the spectrum bidding in our view.

Currently, we recommend FULLY VALUED on StarHub and HOLD on M1, which are trading at 16x and 14x FY16F PE respectively.

Our base-case TP of S$2.60 assumes a 10% adverse impact on M1’s revenue due to the entry of a fourth player in 2022, compared to its revenue in 2015. EBIT margins may fall to 16% versus 20% currently.
Under our bear-case scenario, we assume a 12% adverse impact on revenue in 2022, with EBIT margins dropping to 15%. Our bear-case TP is S$2.20.
Under our bull-case scenario, we assume that there is no entry of a fourth telco and no adverse impact on M1’s revenue in 2022, although EBIT margins may slip to 19%. Our bull-case TP is S$3.40.

Our base-case TP of S$3.30 assumes a 4% adverse impact on StarHub’s revenue due to the fourth player in 2022, with EBIT margins falling to 18% versus 20% currently.
Under our bear-case scenario, we assume a 6% adverse impact on revenue in 2022, with EBIT margins dropping to 17%. Our bear-case TP is S$3.00.
Under our bull-case scenario, we assume that there is no entry of a fourth telco and no adverse impact on StarHub’s revenue in 2022, although EBIT margins may slip to 19%. Our bull-case TP is S$4.10.

Sachin MITTAL DBS Vickers | http://www.dbsvickers.com/ 2016-03-10

DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 2.60 Same 2.60

FULLY VALUED Maintain FULLY VALUED 3.30 Same 3.30