M1 LIMITED
B2F.SI
STARHUB LTD
CC3.SI
Telecommunication - Risks are partially priced in
- Market has partially priced in the potential threat of 4th mobile player entry; Spectrum award in early 2016 to bring clarity on new entrant.
- Pay-TV sector likely to be resilient in the medium term despite Netflix's entry in 2016; pay-TV business model under threat in the long term though.
- Maintain Fully Valued on M1 and StarHub as they have little capacity to invest during uncertain times after paying out almost all of their free cash flows as dividends.
Outlook
Potential 4th player could gain 7% revenue share in five years.
- 60 MHz of reserved spectrum across 900 MHz, 2.3 GHz and 2.5 GHz bands will be auctioned in early 2016. MyRepublic and Consistel are likely to bid for it. Actual operations could start from April 2017.
- Based on UMobile’s performance in Malaysia, we expect the new player to garner 7% revenue share by 2022. We anticipate earnings to start falling at M1 and StarHub from 2017 onwards.
Pay TV is not a concern in the medium term.
- Netflix has adversely affected Pay-TV players in US, less so in UK. Singapore Pay-TV players are likely to be resilient in the medium term as Netflix is likely to partner with existing pay TV players due to the small size of the market. This will allow customers to stream Netflix content on TV through their existing set-top box, without needing to invest in a smart TV or a separate streaming device. However, the channel aggregator model of Pay-TV players is at risk in the long term as individual channels such as HBO and CBO go online. Risks
Non-entry of 4th mobile player.
- An inability to raise funding may not allow MyRepublic (the frontrunner) to bid for the spectrum.
Operational issues of HetNet.
- 4th telco business case is built on the use of Heterogenous network. Any technical issues with Hetnet may haunt the new player.
Valuation & Stock Picks
Maintain Fully Valued on M1 and StarHub.
- We forecast flattish earnings for both the companies in FY16F followed by a low-single-digit earnings decline from FY17F onwards.
- Our DCF-based TPs of S$3.30 for StarHub and S$2.60 for M1 imply target dividend yields of 6% (5.5% currently) and 6.6% (6.1% currently) respectively, given weak growth prospects.
Sachin MITTAL
DBS Vickers
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http://www.dbsvickers.com/
2015-12-17
DBS Vickers
SGX Stock
Analyst Report
2.60
Same
2.60
3.30
Same
3.30
