Singapore Telecom - DBS Research 2016-12-15: One more leg down

Singapore Telecom - DBS Vickers 2016-12-15: One more leg down Singapore Telcos Sector Outlook

Singapore Telecom - One more leg down

  • TPG outbids our favourite player MyRepublic in a surprise move to become the 4th mobile player
  • TPG bid aggressively -3x the reserve price and its strong balance sheet could result in higher-than-expected revenue share changes
  • Despite recent weakness, we maintain FULLY VALUED on M1 and StarHub with lower TPs. M1 and StarHub offer limited upside even under our bull-case scenario TPG bid aggressively -3x the reserve price of the spectrum. 

TPG Telecom Pte Ltd (TPG) made the winning bid

  • TPG Telecom Pte Ltd (TPG) made the winning bid of S$105m, and will be allocated 60MHz of spectrum, comprising 20MHz in the 900MHz band and 40MHz in the 2.3GHz band.
  • The new spectrum rights will commence on 1 April 2017. TPG will be required to provide nationwide street level coverage for 4G within 18 months from the start of the new spectrum rights; road tunnels and in-building service coverage within 30 months; and coverage for MRT underground stations/lines within 54 months from the start of the new spectrum rights.
  • The regulator will proceed with the second stage of the auction in 3Q17 – open to M1, Singtel, StarHub and TPG.

We project the 4th player to gain 8.5% mobile revenue share by 2022 versus 7% earlier. 

  • MyRepublic had budgeted S$300m capex plan for the mobile network and we had estimated MyRepublic to secure 7% revenue share by 2022 just like U-Mobile in Malaysia. But TPG has enough capacity to install a nationwide mobile network. 
  • TPG with an annual EBITDA of A$770-775m and FY16 (July year-end) net debt-toEBITDA at 1.6x, has enough room to raise over S$500m to S$1bn required to roll out a mobile network. 
  • We project TPG to secure 8.5% revenue share by 2022.

Maintain FULLY VALUED on StarHub & M1 with TPs of S$2.65 (prev S$2.80) & S$1.78 (prev S$1.97) respectively.

  • We project StarHub’s & M1’s earnings to contract by 25% & 41% respectively in FY22 versus FY15 due to higher revenue share loss. 
  • Previously we had projected 20% & 31% earnings contraction respectively. Under our bull-case and bear case scenarios for the existing telcos, we project TPG to secure 6% and 10% revenue share respectively. 
  • Even under our bull-case TP of S$3.02 for StarHub and S$2.10 for M1, the stocks offer limited upside potential. Our bear case TP is S$2.56 for StarHub and S$1.65 for M1.

Relevant Reports: 

Sachin MITTAL DBS Vickers | 2016-12-15
DBS Vickers SGX Stock Analyst Report FULLY VALUED Maintain FULLY VALUED 1.78 Down 1.970