Telecommunications - RHB Invest 2015-12-02: Awaiting The Final Decree

Telecommunications - RHB Invest 2015-12-02: Awaiting The Final Decree SINGTEL Z74.SI  M1 LIMITED B2F.SI  STARHUB LTD CC3.SI 

Telecommunications - Awaiting The Final Decree 

  • Singapore telcos enter 2016 faced with uncertainties over their spectrum ownership and prospects of fresh competition, while the liftoff in US interest rates would amplify the yield reversal theme. 
  • With share prices having taken a beating in 2015, sector valuations appear fair when stacked against ASEAN peers. 
  • We advocate a selective stock picking strategy, with preferred exposures being Singtel and M1. 

 Infocomm Development Authority (IDA) to deliver its decision soon. 

  • We expect the IDA to finalise the spectrum framework – with regards to a fourth mobile network operator – with an auction called by end-1Q16. A new operator is likely to be given a combination of low to high band spectrum, but the IDA may look to “modify” the terms of the 900MHz blocks following massive protests from the incumbents. 
  • While MyRepublic Ltd (MR) said it was committed to a small cell launch (trials undergoing at the Jurong Lake District) on the heterogeneous network (HetNet), it still has to meet the strict street level coverage by Oct 2017 stipulation. 
  • It remains to be seen if MR has the financial capacity to fulfil the conditions set without some form of infrastructure sharing. 
  • We are less bearish than the street on the prospects of additional competition. 

 Data monetisation still patchy. 

  • Three years after tiered data plans were introduced, the percentage of postpaid subscribers (subs) on tiered plans has risen above 60%, with c.23% consuming in excess of their data bundles. The anticipated uplifts in postpaid ARPUs have nonetheless been patchy due to roaming weakness, data cannibalisation and the preference for shared plans, which are ARPU dilutive. 
  • The telcos re-priced their tiered data plans in Sep 2014 by 5-13% in an attempt to better monetise data traffic. This follows the doubling of excess data charge to SGD10.70/gigabyte (GB) in Jan 2014. 
  • Prices of tiered plans have remained relatively steady since. 

 Enterprise in focus alongside smart nation projects. 

  • We expect the enterprise segment to be a key growth driver for StarHub and M1 as they focus on customised enterprise and cloud solutions. This effectively encroaches into Singtel’s stranglehold in the enterprise space. M1 recently launched an advanced machine-to-machine (M2M) platform and is set to introduce Internet of Things (IoT) solutions for the security, healthcare and transport industries. We understand it also recently bagged sizeable contracts on Smart Nation initiatives and government-related projects. The enterprise business contributes 25% to Singtel’s domestic revenue vs the 16% and 7% for StarHub and M1 respectively. 

 NEUTRAL, with another stock-picking year likely. 

  • The sector’s Achilles’ heel remains the potential threat from a disruptive fourth operator, while the lift-off in US interest rates is likely to shift the yield reversal theme into overdrive. 
  • Given the sharp share price beating in 2014, some of the downsides are already in the prices. 
  • Our preferred exposures are Singtel and M1. 
  • In our view, StarHub is most vulnerable to yield decompression.

Singapore Research Team RHB Research | http://www.rhbinvest.com.sg/ 2015-12-02
RHB Research SGX Stock NEUTRAL Maintain NEUTRAL 3.90 Same 3.90
BUY Maintain BUY 3.72 Same 3.72
NEUTRAL Maintain NEUTRAL 4.00 Same 4.00