Telecom Sector - DBS Research 2016-11-17: New Entrant Confirmed

Telecom Sector - DBS Vickers 2016-11-17: New Entrant Confirmed STARHUB LTD CC3.SI

Telecom Sector - New Entrant Confirmed

  • My Republic and TPG Telecom pre-qualified to bid for the reserved spectrum.
  • Spectrum auction planned in 1Q 2017; TPG’s entry could imply downside to our estimates for M1 and StarHub.
  • Maintain Fully Valued ratings on M1 and StarHub with TPs of S$1.97 and S$2.80 respectively.

What’s New 

MyRepublic and TPG pre-qualified by the regulator to bid for the reserved spectrum. 

  • Since the regulator has performed a financial and technical scrutiny of their business plans, we are likely to see competitive bidding for the spectrum that is planned to take place in the first quarter of 2017. As such, there will be a fourth player in our opinion. Details have not been disclosed yet.

We project the new entrant will secure 7% revenue share by 2022 once it enters in late 2018. 

  • This is based on the trend we have seen in Malaysia after U-Mobile entered the sector in Sep 2007. However, TPG could be more destructive than My Republic due to its much larger and stronger balance sheet, implying some downside risk to our earnings estimates on M1 and StarHub.

Our TP for StarHub is S$2.80, implying 10% downside risk. 

  • We expect StarHub’s mobile revenues to decrease by 15% and earnings to contract by 16% in 2022 versus 2015. We do not think StarHub’s current dividend yield of 6.4% is sustainable and project this to decline with the fall in earnings.
  • Please click here for report: StarHub: Lower grant could hurt earnings 

Our TP for M1 is S$1.97 implying 4% downside risk. 

  • We project M1’s mobile revenues to contract by 24% from 2015 level with a 31% drop in earnings by 2022. We do not think M1’s current dividend yield of 6.1% is sustainable and project it to decline to below 5% by 2022.
  • Please click here for report: M1: Sharp decline in service revenue

Sachin MITTAL DBS Vickers | 2016-11-17
DBS Vickers SGX Stock Analyst Report FULLY VALUED Maintain FULLY VALUED 2.80 Same 2.800
DBS Vickers SGX Stock Analyst Report FULLY VALUED Maintain FULLY VALUED 1.97 Same 1.97