Singtel - UOB Kay Hian 2015-09-17: Weathering The Storm From “Currency War”


Singapore Telecommunications (ST SP) - Weathering The Storm From “Currency War” 

  • The recent share correction is not justifiable given that Singtel doesn't really get affected by competitive devaluation of regional currencies triggered by depreciation of the Chinese renminbi. 
  • Growth would be driven by its regional mobile associates, especially from exponential growth in usage of data that accounts for 25% and 19% of mobile revenue respectively for Telkomsel and Bharti Airtel. 
  • Maintain BUY. Target price: S$4.56. 


• Damage from fluctuation in forex rates is mild. 

  • Many investors erroneously perceived that the depreciation of Chinese renminbi and volatility in the forex market have affected Singtel. The weakness in regional currencies occurred earlier in April when the Indian rupee and Thai baht depreciated 5.2% and 4.9% against the Singapore dollar respectively. Thereafter, the fluctuation in regional currencies against the Singapore dollar has been less volatile recently. The impact from the depreciation of Chinese renminbi is mild as the Singapore dollar has weakened in tandem with regional currencies. 

• Optus differentiating through data sharing. 

  • Optus’ new My Plan Plus, launched in Apr 15, allows families to pool separate mobile plans under one bill to share their combined data allowance. Demand for data is “asymmetric”. Those aged 18-20 use 2.7 times more data compared with those above 45 years old. Thus, many parents would find My Plan Plus attractive as they could share their unused data with their children. 
  • Optus has accelerated its roll-out of 4G in metropolitan and regional areas following the release of 700MHz frequency spectrum in Jan 15. Its current population coverage for 4G is 90%, closing the gap with Telstra at 94%. It intends to differentiate itself by bundling mobile, fixed broadband and entertainment offerings. 

• Growth from data in emerging economies. 

  • Singtel benefits from strong growth in data traffic at 131% yoy for Telkomsel and 183% yoy for Bharti Airtel. The potential is immense as the average usage per data user is still low at 617MB for Telkomsel and 706MB for Bharti. The average pricing was Rs0.26/MB for Bharti in 2Q15, down 8.8% yoy, compared with Rp39/MB for Telkomsel, down 37% yoy. Both Telkomsel and Bharti enjoyed strong growth in data revenue at 45% and 67% yoy respectively. 

• Re-iterate BUY. 

  • Our target price for SingTel is S$4.56, assuming probability of 75% for Scenario A (no new entrant) and probability of 25% for scenario B (fourth mobile operator disrupts the status quo).

Jonathan Koh CFA UOB Kay Hian | http://research.uobkayhian.com/ 2015-09-17
UOB Kay Hian Analyst Report BUY Maintain BUY 4.56 Down 4.72

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