Telecommunications – Singapore - UOB Kay Hian 2018-08-20: Updates From Down Under – Implications For Singapore

Telecommunications – Singapore - UOB Kay Hian Research 2018-08-20: Updates From Down Under – Implications For Singapore Singapore Telco Stocks M1 LIMITED SGX:B2F SINGTEL SGX:Z74 STARHUB LTD SGX:CC3

Telecommunications – Singapore - Updates From Down Under – Implications For Singapore

  • TPG Telecom has launched unlimited data plans on a trial basis in Australia. The ingenious plan provides 1GB of data at 4G LTE speed every day, after which speed is throttled to 1Mbps for the remainder of the day. Price competition would intensify if TPG launches a similar unlimited data plan in Singapore.
  • In Australia, Telstra intends to sacrifice margins by removing excess data charges.
  • We have lowered our target price for Singtel from S$4.05 to S$3.98 due to increased competition in Australia. Maintain MARKET WEIGHT on the sector.



WHAT’S NEW


TPG differentiates with unlimited data.

  • TPG Telecom is scheduled to launch its unlimited data plan on a trial basis during 2H18. The first 1GB of data every day would be supplied at 4G LTE speeds, after which speed will be capped at 1Mbps for the remainder of the day. The trial is free for the first six months. Customers who elect to continue after the six-month free period pay a subscription charge of just A$9.99/month.
  • TPG will provide data-only packages and will not be offering traditional voice initially. TPG’s customers have to make voice calls using apps, such as WhatsApp, Line and Viper. According to TPG, traditional voice will be added at a later stage.


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Optus: Pioneering unlimited data plan in Australia.

  • Optus’ Unleashed Mobile 12-month SIM-only data plan is only available to selected customers directly invited by Optus. Each selected customer can have a maximum of five Unleashed data lines. The first data line is priced at A$60, the second at A$50 and the third and subsequent data lines at A$40. 
  • Unleashed data plan provides unlimited data, although streaming of video is capped at 1.5Mbps. The plan also offers unlimited local calls to all mobile and landlines and unlimited SMS. Quality of data experience could be affected during peak periods as Optus manages network congestion by deprioritising the heaviest data users.

Telstra: Providing customers with peace of mind.

  • CEO Andy Penn has unveiled his Telstra 2022 strategy to overhaul Telstra in June. The 3-year plan calls for cost reduction of A$2.5b, cut in headcount of 8,000 (removal of one in four executives and middle management roles), creation of a wholly-owned infrastructure business unit called InfraCo and sale of A$2b in assets to strengthen balance sheet.
  • Telstra will radically transform its mobile plans and pricing. It intends to remove excess data charges, which involves sacrificing revenue of A$500m and offering unlimited data eventually for all mobile plans. Telstra has launched two 12-month SIM-only mobile plans, Medium at A$69 and Large at A$89, with 40GB and 60GB of data at uncapped speed respectively, followed by Peace of Mind data capped at 1.5Mbps for the remainder of the month. The two plans also offers unlimited local calls and SMS and unlimited international calls and SMS from Australia to 14 countries. The Large plan also includes unlimited international roaming for calls and SMS and international roaming data allowance of 2GB for 74 countries.

What can we do with data speed of 1.5Mbps?

  • Data speed of 1.5Mbps is suitable for streaming of standard definition videos but would be insufficient for high definition videos. Customers can also listen to music, browse the web and access social media.


ACTION


Saying goodbye to excess data charges.

  • The average rate for excess data is A$10/GB in Australia. Many people also curb usage when nearing the maximum limit of their data allowance. Unlimited data plans ensure that customers’ monthly outlays for mobile is fixed and customers do not have to worry about bill shock.

Implications for Singapore.

  • Price competition would intensify if TPG Telecom launches a similar unlimited data plan in Singapore:
    • TPG is a budget and no frills player but its mobile plans are extremely affordable. Its unlimited data plan would still be considered cheap even if pricing is doubled from A$9.99 to A$19.99 after adding traditional voice (Optus ARPU: A$42).
    • Pricing for unlimited data plans remain prohibitive in Singapore.
      • M1’s 12-month SIM-only mySIM 98 plan offers 100 mins of talk time, 100 SMS and unlimited data at S$98 (data speed not throttled).
      • StarHub’s existing mobile plans offers unlimited data over the weekends.
      • For Singtel, customers can add Data X Infinity for unlimited data to existing plans for S$39.90.
      • MVNO Zero1 offers an unlimited data plan (only the first 3GB at 4G LTE speeds) with 200 mins of talk time at S$29.99.

Maintain MARKET WEIGHT.

  • We maintain our defensive stance on the telco sector as we brace ourselves for the impending entry of TPG as the 4th mobile operator.
  • BUY Singtel (Target: S$3.98) due to its geographical diversification.
  • M1 and StarHub are vulnerable ahead of the commercial launch by TPG Telecom in 4Q18 due to their greater reliance on the Singapore market.


Singtel (BUY/S$3.11/Target: S$3.98)

  • Singtel provides a defensive shelter due to its geographical diversification. Mobile business in Singapore accounts for only 7% of group revenue if we include its proportionate share of its associates’ revenue.
  • We trimmed our earnings forecast for 2019 by 0.9% and 2020 by 1.3% due to reduced contribution from Optus with increased competition in Australia.


M1 (SELL/S$1.59/Target: S$1.55)

  • Maintain SELL. M1 is vulnerable to increased competition for mobile in Singapore, which accounted for a sizeable 75.7% of its service revenue in 2Q18. Our target price of S$1.55 is based on DCF (COE: 8.75%, terminal growth: 1.0%).


StarHub (HOLD/S$1.66/Target: S$1.82)

  • Maintain HOLD. StarHub is vulnerable to increased competition for mobile in Singapore, which accounted for 45.7% of its service revenue in 2Q18. Our target price of S$1.82 is based on DCF (COE: 9.25% and terminal growth: 1.0%). Suggested entry price: S$1.64.


SECTOR CATALYSTS

  • M1 and StarHub collaborating on network sharing.
  • Impending entry of TPG Telecom as the 4th mobile operator in 4Q18.


ASSUMPTION CHANGES

  • We kept our earnings forecasts largely unchanged.


RISKS

  • Competition and pricing erosion worsen more than expected post entry of TPG.
  • M1 and StarHub failing to close the deal or achieving the desired cost savings from ork sharing.








Jonathan Koh CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2018-08-20
SGX Stock Analyst Report SELL Maintain SELL 1.550 Same 1.550
BUY Maintain BUY 3.98 Down 4.090
HOLD Maintain HOLD 1.82 Down 1.920



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