Singapore Telcos - Maybank Kim Eng 2019-10-09: Our Survey Says Loyalty Remains

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

Singapore Telcos - Our Survey Says Loyalty Remains

Digging in. Maintain NEUTRAL

  • Despite a proliferation of 12 wireless brands, our 154 respondent survey indicates churn risk and therefore the zeroing out of a subscriber’s revenue remains low for MNO incumbents such as SingTel (SGX:Z74) and StarHub (SGX:CC3).
  • We believe share prices are largely pricing in revenue erosion risk but the market is seeking signs of industry repair (e.g. MVNO closure, pricing power etc) for confidence in wireless valuations to return. See SingTel share price; StarHub share price.
  • NetLink Trust (SGX:CJLU) and StarHub remain our key ideas for opposite reasons; one for stability and security and the other for recovery value from expected FY20E profit lows.

More brands…but also more of the same

  • Not surprisingly, the MNO incumbents SIM share and ranking remain the leaders but with trial launched TPG and MVNO Circles.Life generating the most current and future interest among the other brands.
  • The majority (60%) of respondents prefers to stick to one SIM but versus our last survey in Feb 2019 there is higher 2 or 3 SIM ownership that likely reflects subscribers trying out the new brands and/or managing their budgets by spreading usage. With 88% of respondents remaining sticky to their primary service provider, churn risk appears low. Our base case of wireless revenue erosion for incumbents rather than a steep drop appear justified.

Sending a consistent message

  • Similar to our previous survey, respondents indicated they would port their number rather than acquire a new SIM if they wanted to try a new brand. Given the high retention rate, however, we believe this is more of a “keep us happy or else” statement to incumbents.
  • Wireless data allocations and pricing need to be competitive; even within handset subsidy plans which remain the most popular.

Will the Sept quarter be the bottom?

  • In the recent June quarter, wireless service revenues of SingTel and StarHub were flat q-o-q but management teams remained cautious given typical seasonal boosts. With the wireless plans generally stable, this upcoming results season may highlight the softest period.
  • Based on our sensitivity analysis, not surprisingly StarHub is the most sensitive to a 1% change in Singapore wireless revenue at 2%-3% of core profit against geographically diversified SingTel at 0.3% of core profit.
  • See attached PDF report for the 12 survey questions and also the detailed findings and assessment.

Luis Hilado Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-10-09
SGX Stock Analyst Report HOLD MAINTAIN HOLD 3.440 SAME 3.440