Singapore Telcos - Maybank Kim Eng 2018-11-27: A Delay Is No Panacea

Singapore Telcos - Maybank Kim Eng Research | SGinvestors.io SINGTEL (SGX:Z74) M1 LIMITED (SGX:B2F) STARHUB LTD (SGX:CC3) NETLINK NBN TRUST (SGX:CJLU)

Singapore Telcos - A Delay Is No Panacea


TPG’s launch timing is unknown but remains a threat

  • The year is drawing to a close but there remains no sign of a TPG commercial launch this year, despite its disclosure in Sep 2018 that it was on track to meet outdoor-coverage milestones set by regulator IMDA.
  • A delay gives the incumbents more time to prepare for the competition and re-contract subscribers to new 24-month terms and protect cashflows for a longer period. However, this is not a long-term cure, in our opinion.
  • In light of the wireless uncertainties, we continue to prefer the fibre backbone monopoly business provided by NetLink NBN Trust.



A problem that is not going away

  • The launch of several MVNOs and rising popularity of SIM-only plans with no handset subsidies or contracts are all preparations made by the incumbents against TPG. This, despite a seemingly benign target of a 5- 6% market share as first disclosed by TPG in Dec 2016 (see TPG media release).
  • With potential niches being addressed even before its launch, there is a risk that TPG may be forced into a corner where only irrational price competition is its only option.


Focus on what you can control

  • In face of uncertain rival reactions, the incumbents have embarked not only on cost-restructuring but also retooling their business practices. The latter include enterprise digitalisation, and a revamp of the revenue model for pay TV and bundling.
  • We have a BUY on StarHub on the premise of its relatively aggressive stance (see recent report: StarHub - Restructuring Journey Continues) and view Singtel’s moves in that direction favourably (see recent report: SingTel - Inception).
  • On the flipside, we have a SELL on M1 as we have not factored in potential post-GO restructuring which the market may already have priced in (see recent report: M1 - Potential General Offer Priced In; SELL).


Future earnings and Target Price risks?

  • We currently forecast a gradual 2% wireless-revenue erosion for the incumbents over FY18-20E. Incumbent revenue is inclusive of MVNO-derived revenue.
  • We assume that TPG will take its 5% revenue market share (see figure3 in the PDF report attached) by FY20E. Part of the erosion should be mitigated by rising fixed-network and enterprise-derived revenue.
  • Our sensitivity analysis (see figure1 in the PDF report attached) indicates that every 1% change in wireless revenue could affect their core profits and TPs by 1-3%. Against this backdrop, we believe that NetLink’s natural fibre monopoly coupled with its estimated healthy dividend yields of 6% should provide the best shelter.





Luis Hilado Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2018-11-27
SGX Stock Analyst Report HOLD MAINTAIN HOLD 3.390 SAME 3.390
SELL MAINTAIN SELL 1.630 SAME 1.630
BUY MAINTAIN BUY 2.210 SAME 2.210
BUY MAINTAIN BUY 0.930 SAME 0.930



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