Singapore Telcos - Maybank Kim Eng 2018-05-22: From Hero To Zero

Singapore Telcos - Maybank Kim Eng 2018-05-22: From Hero To Zero SINGTEL SGX:Z74 M1 LIMITED SGX:B2F STARHUB LTD SGX:CC3 Circles.Life Singapore Telco

Singapore Telcos - From Hero To Zero

Zero-cost plan: more revenue erosion coming?

  • Unlisted Circles.Life has launched a free wireless plan with 1GB of monthly data allocation, 30 minutes of voice and 10 SMS. There are no “hidden fees” or contracts.
  • Our industry base case of gradual wireless-revenue erosion for the incumbents could be at risk, depending on how all competitors react. Our sensitivity analysis suggests that every 1% change in wireless revenue could affect their core profits and Target Prices by 1-3%.
  • Remain NEUTRAL on the sector as current prices reflect our forecast of gradual incumbents’ revenue erosion of 3% p.a. over FY18-20. Maintain HOLD on the three incumbents.
  • For sector exposure, prefer Singtel (Rating: HOLD; Target Price SGD3.57) due to its diversified geographic and business segmentation exposure.

Logical on its own…

  • Circles.Life’s market segmentation that commenced with its maiden SGD28/month 6GB plans and later SGD20/month for an additional 20GB and SGD3/day of unlimited data options has coalesced into a plan for a new segment: less-wireless-data-savvy consumers.
  • We think its pricing structure can help Circles.Life avoid cannibalisation and preserve its existing subscriber revenue, as its customers on the 6GB plan are not likely to migrate to its zero plan. This is because they would have to shell out SGD32 rather than SGD28. However, it may not preclude them from getting new SIMs.

…less so in a competitive environment

  • Circles.Life indicated during its press briefing that it is tracking a few years ahead of its 3-5% market-share target. We think the branding impact from its zero-cost plan can sustain or build Circles.Life’s market grab momentum, unless the other MVNOs or MNO incumbents start to act aggressively to counteract it.
  • To date, the incumbents have generally left competition in the price-sensitive segment to their MVNO partners. However, with Circles.Life addressing even more segments, one wonders what TPG Telecom (TPM AU, Not Rated) would have to resort to in order to carve its niche during launch in 2H18.

Overcast remains

  • Circles.Life’s traction has helped its MVNO partner, M1 (Rating: HOLD; Target Price: SGD1.63) post industry-leading 1Q18 wireless-revenue growth of 3% y-o-y against declines for its competitors. However, we doubt that anyone is insulated from the opportunity costs of subscribers getting 1GB for free.
  • Every 1% change in wireless revenue could lop 1-3% off the core profits and Target Prices of the three incumbents.
  • We remain cautious on the sector.

Luis Hilado Maybank Kim Eng | https://www.maybank-ke.com.sg/ 2018-05-22
SGX Stock Analyst Report HOLD Maintain HOLD 3.570 Same 3.570
HOLD Maintain HOLD 1.630 Same 1.630
HOLD Maintain HOLD 2.270 Same 2.270