Singapore Telcos - Maybank Kim Eng 2019-04-19: Choose Discretion Over Valor

SINGTEL (SGX:Z74) NETLINK NBN TRUST (SGX:CJLU) STARHUB LTD (SGX:CC3)

Singapore Telcos - Choose Discretion Over Valor

During a recent interview, telco and media regulator IMDA indicated its openness to industry consolidation. This possibility for industry repair will likely not come soon but is at least an option.
Along with potential changes to telco and media regulations, we remain cautious on the sector, despite significant share-price corrections. (See SingTel share price, StarHub share price)
Remain NEUTRAL. STARHUB LTD (SGX:CC3) provides the best value while NETLINK NBN TRUST (SGX:CJLU) offers insulation from wireless uncertainties, in our view.

A “converged” code for telecoms and media is being worked on for tentative release on 15 May 2019. What this will entail has yet to be hinted at but will not cover OTT media such as Netflix or call services such as Skype, although IMDA does see them as telco competitors.
Until we have a sense of how the new policies could affect the incumbents but not their virtual competitors, regulations have become a grey area.

With TPG still not having completed all its license requirements, there is no avenue yet for a consolidation involving TPG, as we discussed in our auction evaluation note last year. See: Singapore Telcos - TPG Scenarios ~ The Base, The Blue Skies & The Ugly.
Meanwhile, although we recently questioned the continued viability of MVNO deals in the current pricing environment (see report: Singapore Telcos - M1 De-listing ~ Chaos Or Repair?), Singpaore Press Holdings (SGX:T39) indicated during its quarterly briefing that Konnectivity views the MVNO Circles model and management positively.
Whether the other MVNOs can continue to co-exist with the incumbents and/or whether Circles can be part of an industry consolidation remains to be seen but we believe industry repair will not appear anytime soon.

With the wireless segment facing regulatory uncertainties and with all the new competition intact, NetLink Trust’s residential fibre network monopoly and sustainable yields provide the most sober risk-reward proposition in the telco space, in our view.
Although we see value emerging in wireless-exposed operators, we anticipate revenue and earnings declines this year and next.

Luis Hilado Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-04-19

SGX Stock Analyst Report HOLD MAINTAIN HOLD 3.390 SAME 3.390

BUY MAINTAIN BUY 0.930 SAME 0.930

BUY MAINTAIN BUY 2.180 SAME 2.180