Telecom Sector - DBS Research 2020-03-06: TPG’s Commercial Launch Soon - Free Era Is Over

Singapore Telecom Sector - DBS Research | SGinvestors.io STARHUB LTD (SGX:CC3) SINGTEL (SGX:Z74) NETLINK NBN TRUST (SGX:CJLU)

Telecom Sector - TPG’s Commercial Launch Soon - Free Era Is Over

  • TPG’s commercial launch in a few weeks – its free 400k customers may start churning out soon.
  • Our forecast of 6-7% decline in Singapore mobile revenue in 2020 remains intact; the decline may be lower if more TPG customers churn out.
  • StarHub is our most preferred stock for its 6% yield followed by NetLink Trust and SingTel.

TPG to do commercial launch in the coming weeks along with new prepaid services.

  • During its 1HFY20 (YE July 2020) results on 5 March, TPG announced
    • there are ~400k customers on free trial till Feb 2020 (vs ~300K reported six months back) translating into ~4.4% of Singapore mobile customer base,
    • EBITDA loss of A$1.8m from Singapore while incurring A$69m capex over July 2019-January 2020. This brings cumulative capex spent so far in Singapore to A$211m versus its total planned capex of S$200-300m,
    • the plans to commence paid services in the coming weeks along with new prepaid services at S$10 for 50GB (30 days) and 1GB of roaming data, 300 local minutes and 300 local SMSes.

Some of TPG’s 400k free customers may churn out once it becomes a paid service.

  • Postpaid mobile revenue of existing players may benefit from rising usage as some of TPG’s free customers start discarding their previously free SIM cards.
  • Pre-paid segment catering to foreign workers and tourists, however, may see more competition but also requires extensive distribution network. Anyway, prepaid comprises less than 20% of total Singapore mobile revenue and even a 20-30% drop in prepaid ARPU of existing players will have 4-6% adverse impact on existing players’ mobile revenue.
  • We continue to forecast a 6-7% drop in Singapore mobile revenue in 2020 and expect TPG to struggle in the 5G era.

StarHub is our most preferred stock followed by NetLink and SingTel.

Breakeven on a cash basis (excluding capex) is a big challenge for TPG to survive.

  • TPG has mentioned that it expects to achieve EBITDA breakeven with 400k subscribers at S$10 monthly ARPU. This translates into just S$48m annual revenue versus our EBITDA breakeven revenue estimate of S$150m. The difference may be largely due to accounting, treatment.
  • It seems to us that most network-related expenses are (including the fee paid for accessing MRT tunnels) are captured under the capex (AS$211m over the last 30 months), which should lead to higher depreciation (partly cash) expenses after the commercial rollout.
  • TPG may not break even below S$150m revenue on a cash basis excluding the capex, and 5G is another big challenge.

Sachin MITTAL DBS Group Research | https://www.dbsvickers.com/ 2020-03-06
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