Telecommunications – Singapore - UOB Kay Hian 2018-09-07: Delay Brings Reprieve

Telecommunications – Singapore - UOB Kay Hian Research 2018-09-07: Delay Brings Reprieve M1 LIMITED SGX:B2F SINGTEL SGX:Z74 STARHUB LTD SGX:CC3 TPG Telecom

Telecommunications – Singapore - Delay Brings Reprieve

  • We expect TPG to launch the trial for its 4G mobile network by 4Q18 and mobile services on a commercial basis are to commence in 2Q19. This represents a delay of 4-6 months compared to our original expectations. The delay was caused by:
    1. delays in gaining access to CAS at commercial buildings and MRT stations, and
    2. the time-consuming process to integrate and test its network without engaging contractors.
  • Incumbent telcos will have more time to further saturate the market. 
  • BUY Singtel and StarHub. Upgrade to OVERWEIGHT.


The original schedule.

  • TPG Telecom disclosed during its 1HFY18 results briefing in Mar 18 that it has completed the roll-out of its data centre and core network in Singapore. It also said that a large number of base stations have been installed. TPG said it is on track to achieve the milestone of nationwide outdoor coverage by end-18.

~ SGinvestors.io ~ Where SG investors share

Channel checks indicate roll-out was hampered by delays.

  • We have conducted further channel checks to verify TPG’s progress in rolling out its 4G mobile network:
    • Started rolling out in-building coverage after protracted delay. TPG encountered extensive delays when negotiating with incumbent mobile operators to access their jointly-built common antenna systems (CAS) at commercial buildings (retail malls and office towers) and MRT stations. However, TPG’s patience has paid off. It managed to eventually gain access, potentially with regulatory intervention, helping them roll out in-building coverage faster and at a lower cost.
    • Arduous process to integrate and test all sub-systems. TPG has awarded contracts to key vendors, including Hua Wei. Unlike typical telcos, TPG does all the integration and testing themselves. It does not outsource these crucial but time consuming tasks to contractors. However, doing so helps TPG keep within its budgeted capex of S$200m-300m. Thus, TPG would have a lean cost structure and would be able to set its pricing more competitively.

Relying on NetLink Trust for backhaul transmission.

  • TPG is able to utilise NetLink NBN Trust (SGX:CJLU) to provide non-building access points (NBAPs) at a regulated price of S$73.80/month for its backhaul transmission network. NetLink Trust’s management noted that TPG is now expediting its roll-out activities.

Trial to commence by 4Q18.

  • Our channel checks suggest that TPG is on schedule to launch trial for its 4G mobile network by 4Q18. We expect mobile services on a commercial basis to commence in 2Q19. This represents a delay of 4-6 months compared to our original expectations. 
  • From TPG’s perspective, the delay affords it more time to test sub-systems and better integrate different components of its mobile network.


  • We have upgraded the Singapore telecommunications sector from MARKET WEIGHT to OVERWEIGHT:
    1. Delay brings reprieve. The delay encountered by TPG Singapore affords incumbents more time to further saturate the market and to prepare themselves for more intense competition by cutting expenses and streamlining their cost structure.
    2. Strong defensive qualities. Telcos recorded positive net additions and post-paid mobile subscribers increased on a y-o-y basis during the Global Financial Crisis. Our previous study on share price performance indicates that telcos in Singapore have a 73% chance of outperforming the MSCI Singapore Index during recessions. Telcos provide a shelter against the risk of contagion spreading across emerging markets.

Singtel (Rating: BUY/ Target Price: S$3.98)

Maintain BUY.

  • Singtel provides a defensive shelter due to its geographical diversification. Its mobile business in Singapore accounts for only 7% of group revenue if we include its proportionate share of its associates’ revenue.

StarHub (Rating: BUY/ Target Price: S$1.85)

New CEO injects new vigour.

  • Execution has improved since Peter Kaliaropoulos took over as CEO with effect from 9 Jul 18. Within two months of his appointment, StarHub has scaled up in cyber security with the merger of Accel Systems & Technologies with Temasek’s Quann World to form Ensign InfoSecurity.

Upgrade to BUY.

  • Our target price of S$1.85 is based on DCF (COE: 9.25% and terminal growth: 1.0%).

M1 (Rating: SELL/ Target Price: 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%).


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


  • We maintain our existing earnings forecasts.


  • Competition and pricing erosion worsening more than expected post entry of TPG.
  • M1 and StarHub not closing the deal or achieving the desired cost savings from network sharing.

Jonathan Koh CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2018-09-07
SGX Stock Analyst Report SELL Maintain SELL 1.550 Same 1.550
BUY Maintain BUY 3.980 Same 3.980
BUY Upgrade HOLD 1.850 Same 1.850