Singapore Telecom Sector - DBS Research 2016-03-30: Will NFC enabled SIMs replicate the success of Apple Pay?

M1 LIMITED B2F.SI STARHUB LTD CC3.SI

Singapore Telecom Sector - Will NFC enabled SIMs replicate the success of Apple Pay?

With the new Near Field Communication (NFC) SIM cards, certain mobile devices can be used for payments on MRT, LRT and public buses, as well as at more than 30,000 ez-link acceptance points
Apple Pay added security and user friendliness to the existing credit card ecosystem which we do not see happening with this approach.
The exclusion of iPhones, lower acceptability of ezlink versus NETS and credit cards, and high upfront cost of the NFC SIM cards are other key barriers to its adoption.

With the new NFC SIM card, certain mobile devices can be used for payments on MRT, LRT and public buses, as well as at more than 30,000 ez-link acceptance points across the island, according to a joint press release by the Land Transport Authority (LTA), Infocomm Development Authority of Singapore (IDA) and EZ-Link on Tuesday.

iPhone which commands over one-third share in Singapore is excluded as it only supports “Apple Pay”, thus leaving out a big portion of the market.
Secondly, ez-link is not accepted at 7-11 stores and various retail outlets which prefer NETS and credit cards.
On top of this, subscribers will have to pay S$37.50 for purchasing new NFC enabled SIM cards from all three local telcos for no extra benefit.

“Apple Pay” has been quite successful in the US mainly because of its user friendliness. It eliminates the need to swipe the credit card and sign the bill by just waving the iPhone. Users load their credit card on the iPhone so there is no need to carry the credit card.
But more importantly, “Apple Pay” makes the contactless payments secure with “Touch ID” authentication. Even if an iPhone is lost, it cannot be misused by anyone versus a lost “Visa payWave” card which can be used by anyone.

The conventional ez-Link card is like a “Visa payWave” as it does not need swiping of the card but ez-link is not widely popular for retail transactions even in Singapore. Plus NFC enabled payment is not adding any security feature to the ez-link card while “Apple Pay” adds security to credit card transactions. So we do not see that the NFC enabled SIM based payments will be widely used.
Anyway, telcos may not get much commission out of the transactions, as the bulk may go to ez-link for its large customer base using it for buses and trains.
Most negatives are priced in for M1, which is trading at 14x FY16F PE and represents a 12% discount to StarHub’s 16x.
But, potential upside will only emerge if there is no new entrant in the mobile sector.
We keep our Fully Valued rating on StarHub (TP S$3.30) and HOLD on M1 (TP S$2.60) due to the potential entry of new player which will only be clear in 3Q16.

Sachin MITTAL DBS Vickers | http://www.dbsvickers.com/ 2016-03-30

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

FULLY VALUED Maintain FULLY VALUED 3.30 Same 3.30