Telecom Sector: Mostly decent start to 2015
Relatively decent start to 2015, with both M1 and Singtel posting earnings that were within forecast; StarHub missed due to margin erosion. Still, outlook for the three remains fairly upbeat, although we foresee some risks in the medium to long term. The key among them includes rising interest rates and the possibility of a 4th telco in Singapore. As such, we are maintaining our NEUTRAL rating on the sector; but we do see potential value emerging at lower levels and advocate a bottoming picking approach. Singtel remains our top pick; M1 is also looking interesting around current levels as its yield has increased to 5.7% after the recent sharp pullback. (Carey Wong)
Singtel: Reaffirms modestly upbeat outlook
Singtel held its Investor Day 2015 on 3 Jun, where analysts and investors got to meet and get updates from both Singtel management as well as management teams from their regional associates. Key takeaways include the potentials in its Enterprise and also the various strategies by its regional associates to grow their business and capitalize on changing consumer behaviors in the various countries. Meanwhile, Singtel’s share price saw a pretty steep correction over the last week or so, falling to as low as S$3.91 on Wednesday, in line with the sell-off in the broad market. But we believe that value is emerging (especially below S$4) and as we adjust our SOTP-based fair value up from S$4.31 to
S$4.40 to reflect the higher prices of its listed associates, we also upgrade our call to
BUY. (Carey Wong)
M1: Yield back above 5%
M1 Ltd recently saw a sharp sell-down in its share price, dropping nearly 20% from its 52-week high of S$3.99 to its current price around S$3.21; investors likely spooked by rising interest concerns as well as talks of the emergence of a fourth telco in Singapore. M1 – being the smallest here – is seen to be most at risk of losing market share. Having said that, we note that the company’s outlook for 2015 still happens to be the most optimistic among its peers. In the wake of the recent sell-off, we note that M1’s forecast dividend yield is back up to around 5.7% - the highest among its peers (StarHub would be second around 5%). And while rising interest rates is probably a given, the extent of the rate hikes remains uncertain, given the still splotchy pace of economic recovery in the US. And as the current share price also offers a decent 14% capital appreciation to our unchanged
S$3.66 fair value, we upgrade our call to
BUY. (Carey Wong)
UOB: Upgrade to BUY
UOB’s shares have declined to a recent low of S$22.60 on recent market concerns that the local banks may not be able to enjoy higher interest margins for this year. While the outlook for Singapore is fairly positive for the rest of this year, there are some challenges in Malaysia and Indonesia. We expect loans growth to moderate from the strong double-digit growth rates experienced in FY01-FY14 to mid-single digit level in FY15. We mentioned in our 1Q results report that a better level to accumulate UOB shares is below S$23.80. Recent price weakness has opened up opportunities as we see value emerging. With 2-year earnings CAGR of 6%, 1.2x book, 11.0x FY15 earnings and with a dividend yield of 3.3%, valuations are not expensive. We are upgrading UOB to a
BUY and maintaining our fair value estimate of
S$25.20. (Carmen Lee)
Source: http://www.ocbcresearch.com/
Related Post:
