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.
- We like StarHub (SGX:CC3) for it sustainable 6% yield. The joint StarHub-M1 bid for 5G may reduce their future capex boosting free cash flow and facilitate a transition to a three-player market structure.
- We like SingTel (SGX:Z74) for its 5% yield and earnings CARG of 5% over FY20-22F led by Bharti’s turnaround. Singtel is trading at an attractive Holding Company (HoldCo) discount of 22% versus 15% average. See report: SingTel - Negatives Are Priced In At 22% HoldCo. Discount.
- We also like NetLink Trust (SGX:CJLU) for its 5% yield and its unique business model of being largely immune to economic cycles.
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
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https://www.dbsvickers.com/
2020-03-06
SGX Stock
Analyst Report
1.720
SAME
1.720
3.520
SAME
3.520
1.050
SAME
1.050
