Singapore Telecom Sector - UOB Kay Hian 2020-10-28: Benign Competitive Landscape Into 4Q20 As Telcos Welcome The 5G Era

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

Singapore Telecom Sector - Benign Competitive Landscape Into 4Q20 As Telcos Welcome The 5G Era

  • The availability of 5G-enabled handsets will pave the way for incumbents to defend market share while rolling out 5G services in Singapore. We expect a sequentially stronger 4Q20 against the backdrop of:
    1. stable operating landscape;
    2. higher iPhone 12 handset sales; and
    3. active customer acquisitions.
  • Maintain OVERWEIGHT. SingTel will benefit from the reopening of borders while NetLink Trust offers a sustainable dividend yield of 5%.



Arrival of 5G-enabled iPhones provides upselling opportunities via bundling.

  • In conjunction with Apple’s launch of the iPhone 12 series, the Big 3 telecommunications companies (telcos) - SingTel, StarHub and M1 - have started rolling out mobile plans for the iPhone 12 in Singapore. The availability of these 5G-enabled handsets will likely pave the way for a successful roll-out of 5G consumer services in Singapore. It can even entice some consumers to upgrade handset/plans and help create customer stickiness in the next few years.
  • We are positive on the above development and expect sequentially higher handset sales from 4Q20 onwards. Naturally, the risk herein includes weaning consumer confidence and affordability in light of the prolonged economic downturn. Anecdotally, we have seen a spike in 5G subscribers in China and South Korea – making up 7% and 12% of subscriber market share in the respective countries.
  • In addition, we note that iPhone 12 handset subsidies are largely in line with that allotted for the previous iPhone 11 (click view full report button below to see table in PDF report attached). This points to a relatively benign competitive landscape in Singapore at this juncture. We expect new handset and product launches to help drive sequentially higher 4Q20 earnings.
  • In the long run, we see upselling opportunities via bundled packages/discounts that would support virtual reality (VR) broadcasting, 5G cloud computing/gaming, home automation and so forth. This can potentially help telcos secure a 12-24 months lock-up period for premium-priced 5G plans to defend average revenue per user (ARPU) in the absence of travel-related revenue streams (ie roaming and tourist prepaid SIM cards).


Defending market share with competitive 5G price plans.

  • To recap, the Infocomm Media Development Authority’s (IMDA) overarching targets includes providing 50% of the population with 5G network coverage by 2022. At this juncture, the Big 3 telcos. have successively rolled out 5G trial services in certain areas since mid-August, alongside 5G mobile plans launches.
  • In essence, StarHub offers free contract renewals for its 5G mobile plan, while SingTel and M1 offer value-added services (VAS) to existing plans for 5G access and extra mobile data (click view full report button below to see table in PDF report attached). That said, users could top up as low as S$10 to get 5G access and additional mobile data, where price/GB for 5G plans appears to be much attractive than telcos’ existing 4G plans. From hereon, we believe the incumbents can sustain market share as customers may shift to telcos with nationwide 5G access, better network quality and wider coverage.


Maintain OVERWEIGHT; top pick is defensive NetLink while SingTel will benefit from reopening of economies.

  • The sector has underperformed the STI by 9% ytd and is currently trading below 1SD of its 5-year EV/EBITDA of 12.5x. Given that spending on telecommunications services is deemed essential, we maintain our OVERWEIGHT stance on the sector.
  • Importantly, we believe the 5G roll-out can help incumbents sustain their respective market shares thanks to their nationwide 5G network access. Pronounced monetisation and earnings accretion from enterprise business, however, may take a longer time to bear fruit as telcos continue to explore new business applications for 5G.

NetLink Trust (SGX:CJLU) (BUY/ Target Price: S$1.08).


SingTel (SGX:Z74) (BUY/ Target Price: S$2.80).


StarHub (SGX:CC3) (BUY/ Target Price: S$1.40).



Benign competitive landscape into 4Q20 as we expect TPG to focus on network expansion in 2021.

  • The Big 3 telcos command a 94% subscriber market share in Singapore as of 2Q20. This is a decline of 3ppt from 97% a year ago, with the proliferation of Mobile Virtual Network Operators’ (MVNO) SIM-only offerings. We take the view that market share for MVNOs and importantly, the fourth telco - TPG Telecom (TPG) - will remain relatively small even with its attractive S$10 for the 50GB SIM-only/prepaid plan launched in Mar 20. The competitive landscape in Singapore appears unchanged ytd as consumers shift from prepaid to postpaid.
  • We also note that TPG has been granted more time to achieve its MRT tunnel coverage milestones. As such, we believe it would be difficult in the near term for TPG to make significant inroads, given the absence of nationwide 5G access and incumbents’ grip on premium customers.


Singapore Nationwide 5G coverage by 2025.

  • SingTel and the StarHub-M1 JV have been awarded the rights to build Singapore’s two nationwide 5G networks on the 3.5 GHz spectrum. The aim is to provide 50% of the population 5G coverage by 2022 and to achieve nationwide coverage by 2025.
  • Assuming about S$550m is needed for a standalone 5G roll-out in Singapore, the additional capex will be well spread over 4 years and works out to be S$150m annually for telcos. This helps to ease cash flow constraint on Singapore telcos and pave the way for sustainable dividend yields.
  • Anecdotally, SingTel has previously guided that capex intensity will rise to mid-teens and will then taper off back to 10-11% of service revenue when there is a technology refresh.

5G journey of sharing backhaul.

  • The StarHub-M1 JV encompasses the sharing of the active radio network, including the 3.5GHz spectrum, antennas, radio base stations and transmission backhaul. In addition, the JV would be jointly wholesaling the nationwide 5G access to other mobile operators and MVNOs. Having said that, the core network for 5G and existing 3G/4G would still be run independently and services to consumers and enterprises would remain fully differentiated.
  • Given the synergy from collaboration with M1, we gathered that the 5G capex for StarHub alone is estimated at S$200m over five years, starting from 2H20.


Enterprise solutions in limelight, but earnings accretion will take time.

  • As COVID-19 accelerates the demand for digitisation, we believe the incremental opportunities of 5G investment will rely heavily on enterprise business solutions. That said, telcos will have the opportunity to monetise its enterprise solutions through enterprise plans and upselling efforts to existing enterprise customers.
  • That said, earnings accretion will remain elusive in the medium term, given the heavier system integration process.





Chong Lee Len UOB Kay Hian Research | Chloe Tan Jie Ying UOB Kay Hian | https://research.uobkayhian.com/ 2020-10-28
SGX Stock Analyst Report BUY MAINTAIN BUY 2.800 SAME 2.800
BUY MAINTAIN BUY 1.400 SAME 1.400
BUY MAINTAIN BUY 1.080 SAME 1.080



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