TeleChoice International Limited - NRA Capital Research 2017-04-10: New Smartphone Models To Spur Handset Upgrades

TeleChoice International Limited - NRA Capital Research 2017-04-10: New Smartphone Models To Spur Handset Upgrades TELECHOICE INTERNATIONAL LTD SGX: T41

TeleChoice International Limited - New Smartphone Models To Spur Handset Upgrades

Samsung launched the Galaxy S8 in March

  • Samsung launched its new Galaxy S8 handset at the end of March with a global release date of 21 April.
  • The Samsung Galaxy S8 has been highly anticipated as the Note 7 fiasco in 2016 has led the smartphone maker to double down on efforts to make the Galaxy S8 a success. Samsung officials have been quoted as being optimistic that S8 sales will beat that of the predecessor model S7 and have doubled the initial stock for the S8 compared to the S7.

Series of new smartphone models may spur handset upgrades

  • TeleChoice’s Consumer Business reported a 23% or S$22.6m year-on-year decline in revenue in 4Q16 partly due to Samsung’s recall of the Note 7 phones. The S8 will help drive sales growth for the Consumer or Personal Communications Solutions Business from 2Q onwards, if it proves to be successful. Moreover, Apple is expected to release iPhone 8 in 4Q 2017.
  • Our view is that the new products of this year are more highly anticipated than previous launches and will help to spur handset upgrades, which will in turn provide revenue opportunities for TeleChoice, especially when the company has 14 StarHub and Samsung retail touchpoints in Singapore.

Consumer Business has scope to grow

  • In addition, we expect TeleChoice’s Consumer Business to broaden its services to include e.g. set-top box and home/office networking services for Starhub.
  • Secondly, the Consumer Business is also looking at replicating its services in a third market, after Singapore and Malaysia.
  • Longer term, more aggressive capture of new business opportunities will help the Consumer Business to reduce its reliance on the Singapore market and extract economies of scale from serving a larger portfolio of regional clients.

Any industry consolidation to benefit TeleChoice

  • We noted that there has been talk of potential consolidation within the telecommunication industry in Singapore, following news that the major shareholders of M1 are considering the sale of their stakes. Any consolidation will be beneficial towards TeleChoice which will be able to expand its market share, owing to its strong relationship with StarHub.

Maintain Overweight rating

  • In our revised forecasts, we expect revenue to rebound by close to 10% on the back of faster growth in the Consumer Business. Likewise, PATMI is expected to grow from S$7.7m in FY16 to S$9.9m in FY17.
  • Given the relatively encouraging outlook, we decided to maintain our Overweight rating and valuation of S$0.340 on TeleChoice.
  • Despite the lower PATMI in FY16, TeleChoice has maintained its dividend at 1.6 cents. The valuation of S$0.340 is equivalent to 15.56x FY17 EPS and 4.7% dividend yield given a forecast dividend of 1.6 cents.

Liu Jinshu NRA Capital Research | 2017-04-10
SGX Stock Analyst Report OVERWEIGHT Maintain OVERWEIGHT 0.340 Same 0.340