Singapore Telecom Sector - DBS Research 2019-05-29: How Would M1’s Mobile Makeover Sway The Sector?

Singapore Telecom Sector - DBS Group Research | SGinvestors.io M1 New Price Plan SINGTEL (SGX:Z74) NETLINK NBN TRUST (SGX:CJLU)

Singapore Telecom Sector - How Would M1’s Mobile Makeover Sway The Sector?

  • M1 revamps its mobile offerings completely with cheaper handset-bundled plans and more-expensive SIM-Only offerings.
  • Downside risk to our projected decline of 6.5% in 2019, but long-term impact of the move is likely to be positive from more handset-bundled subscribers.
  • Less than 1% impact on SingTel (SGX:Z74)’s earnings even if mobile revenue were to dip 9% as Singapore mobile contributes < 10% to SingTel’s bottom line.
  • SingTel and NetLink NBN Trust (SGX:CJLU) are our top picks in the sector.



What’s New - M1’s mobile offerings get a makeover.

  • M1 has revamped its mobile offerings completely, doing away with all of its existing SIM-Only and bundled mobile plans and replacing them with a “base plan plus add-ons” structure.
  • Accordingly, M1’s SIM-Only plans start at S$25 per month and offers 30GB of monthly data along with 1,000 minutes of talk time and 1,000 SMS. Base plans can be further enhanced with a range of add-on plans made available (e.g. 10GB of data for S$10). Handset plans follow a similar approach, with the base plan starting at S$30 offering 12GB of data, 100 minutes of talk time and 100 SMS. Both base plans are bundled with free data over weekends, free caller ID and free music streaming on Spotify to name a few complimentary privileges. The plans offer greater flexibility to subscribers for customisation and are offered both digitally and via M1’s stores.
  • We believe M1’s new offerings have taken a page out of the “GOMO” (20GB for S$20) and “Giga” (25GB for S$25) SIM-Only plans launched by SingTel and StarHub (SGX:CC3) over the past few months, except M1 has extended its offerings to the handset-bundled space and offers much greater customisability. In our view, M1’s new plans with better flexibility would be of greater appeal to the millennials that all three operators are aggressively targeting now.

M1 Price Plan 2019.

M1 Price Plan 2019

M1 takes the fight to the handset-bundled offerings.

  • The most significant impact of M1’s renewed plans, in our view, is in the handset-bundled segment. M1 has reduced the entry point of handset-bundled plans from S$40 to S$30 per month with a marginal curtailment of the data quota (12GB now vs. 15GB earlier). Based on our computations of handset subsidies using the iPhone XS as a proxy, we estimate that M1’s new plans lead to S$70 savings over 2- years.
  • We believe this to be a key shift in M1’s pricing strategy. Competition within the mobile sector over the past year was largely limited to SIM-Only offerings with all three incumbents aggressively revising their plans with bigger data bundles at lower price points. M1 has taken a swing at the handset-bundled offerings, a segment in which M1 has a lower traction in, when compared with its larger peers. We believe this could indicate a shift in M1’s strategy after being taken private by Keppel Corporation (SGX:BN4) and Singapore Press Holdings (SGX:T39), with M1 potentially trying to target the corporate bundled-plan segment that is dominated by SingTel and StarHub.
  • With the revamped handset-bundled offerings, M1 is:
    1. Trying to poach high-value handset-bundled users from SingTel and StarHub as M1’s new plans are cheaper and offers very competitive data quotas (Refer to the plan comparisons below)
    2. Trying to decelerate the shift towards SIM-Only offerings. M1’s handset-bundled plans are now only S$5 more expensive, at S$25 vs. S$20 per month before, offers an attractive data quota of 12GB (vs. average smartphone data usage of 4.7GB in Singapore) and requires a lower cash outlay from subscribers (e.g. S$190 lesser for an iPhone XS on an entry level handset-bundled plan). This could result in a deceleration of subscriber migration towards SIM-Only offerings, in our view.

M1 to improve SIM-Only ARPU with the new plans along with some subscriber losses.

  • The new SIM-Only plans starting at S$25 per month (vs. S$20 earlier) are likely to uplift M1’s SIM-Only ARPU ( > 20% of M1’s postpaid subscriber base) although M1 may cede some SIM-Only subscribers to SingTel’s GOMO plans (20GB for S$20) in the process. However, we do point out that Circles.Life, the Mobile Virtual Network Operator (MVNO) partner of M1, still has the cheapest SIM-Only offering with 20GB for S$18. This should help M1 sustain some of the subscriber losses on the SIM-Only front.

Downside risk to our projected 6.5% decline in the mobile sector for 2019.

  • We see downside risk to our projected 6.5% decline in the mobile sector over 2019 in view of these new plans by M1. The new handset-bundled plans are likely to cause further deterioration in the industry’s postpaid ARPU, especially if SingTel and StarHub revamp their bundled plans in light of M1’s new offerings, which we think is likely. However, such revisions would make handset-bundled plans more attractive to users, which in turn could decelerate the migration towards SIM-Only offerings, partially offsetting the negative impact on postpaid ARPU. We maintain our forecast for a projected decline of 6.5% without revisions, until better clarity on the reaction of StarHub and SingTel emerge.

Move towards more attractive handset-bundled plans is positive in the long run.

  • While the immediate impact of these new plans would be negative for the sector, we believe a move to make handset-bundled plans more attractive would be positive over the medium term as:
    1. Handset-bundled offerings are more difficult for TPG and MVNOs to enter, given inherent difficulties in setting up handset distribution channels and supply chains.
    2. Handset-bundled plans ensure much greater customer loyalty than SIM-Only offerings, given the 24-month contract lock-in.
  • Handset-bundled offerings also generate higher ARPU vs. SIM-Only offerings although the impact on the bottom line remains quite similar with the lack of handset subsidies on SIM-Only offerings.

Minimal impact on Singtel’s earnings as Singapore mobile accounts for less than 10% of Singtel’s bottom line.

  • Singapore mobile contributes less than 10% to SingTel’s bottom line (Singapore operations accounted for ~32% of SingTel’s FY19 [March YE] underlying profits of which only ~30% was derived from the mobile segment). Hence, even at an estimated 9% decline in mobile service revenue, we project that SingTel’s earnings would fall by less than 1%, ceteris paribus. Potential downward revisions in the mobile sector should not be of concern for SingTel’s investors, in our view.

Singtel and Netlink are our top picks in the sector.

  • Besides a 17.5-Sct DPS (5.6% yield) committed till FY20F (Mar YE), SingTel offers a 6% earnings CAGR over FY19-21F. This should be driven by associates’ earnings, after two years of decline, potentially leading to a narrowing of the holding company discount (26% currently vs. 14% historically).
  • We maintain our BUY call on SingTel with a Target Price of S$3.55.

NetLink (NLT) offers ~6% yield in FY20F (Mar YE), and FY19-21F EBITDA CAGR of 6% from 100% fibre migration.

  • We argue that NetLink Trust should trade at a lower yield than an average yield of 5.7% offered by large-cap industrial S-REITs as
    1. NetLink Trust’s distributions, due to the regulated nature of its business, are largely independent of the economic cycle;
    2. NetLink Trust’s gearing is less than half of S-REITs’ with an ample debt headroom to fund future growth; and
    3. NetLink Trust’s asset life is much longer than S-REITs as NetLink Trust incurs annual capex to replenish its regulated asset base (RAB).
  • We maintain our BUY call on NetLink Trust with a Target Price of S$0.90.


  • See attached PDF report for summary on the SIM-Only and bundled offerings by SingTel and StarHub, as well as the SIM-only offerings by TPG and MVNO.





Sachin MITTAL DBS Group Research | https://www.dbsvickers.com/ 2019-05-29
SGX Stock Analyst Report BUY MAINTAIN BUY 3.550 SAME 3.550
BUY MAINTAIN BUY 0.900 SAME 0.900



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