Singapore Telecom Sector - DBS Research 2020-12-11: Can Earnings Growth Resume After Four Years?

Singapore Telecom Sector - SingTel, StarHub, NetLink Trust | SGinvestors.io SINGTEL (SGX:Z74) STARHUB LTD (SGX:CC3) NETLINK NBN TRUST (SGX:CJLU)

Singapore Telecom Sector - Can Earnings Growth Resume After Four Years?

  • With COVID-19 impact showing signs of waning in FY21F, industry top line likely to stabilise.
  • SingTel (SGX:Z74) is our top pick for resumption of earnings growth after a gap of four years (FY21F-23F earnings CAGR of 13%) and ~4.8% dividend yield.
  • Prefer NetLink Trust (SGX:CJLU) to StarHub (SGX:CC3); we recommend HOLD on both stocks.

COVID-19’s receding shadow implies potentially stable mobile service revenue in FY21F (vs 22% drop in FY20F).

  • In FY21F, we estimate roaming revenue (15-20% of FY19 mobile revenue) to grow by 60% after dropping over 80% in FY20F with the gradual resumption of travel by both business and leisure tourists. Prepaid mobile revenues (15-20% of FY19 mobile revenue) might also grow by 10% in FY21F after falling over 20% in FY20F, with some foreign workers returning, despite tourism taking longer to recover.
  • As such, we expect mobile service revenues to stabilise in FY21F, compared to a 22% decline in FY20F and a normalised contraction of 8% (excluding COVID-19 impact) in FY20F. Enterprise revenue might also resume growth after a decline in FY20F.

Year-to-date performance of SingTel, StarHub & NetLink Trust

  • SingTel's share price is down 29% year-to-date due to concerns regarding its core business and dividend cuts despite growth in associate contributions. SingTel’s 9M20 underlying profit from Singapore (including withholding taxes) declined by 38% to S$396m despite S$23m income from the Job Support Scheme (JSS).
  • While SingTel’s Singapore business suffered due to COVID-19-related inbound and outbound travel restrictions and deferment of enterprise projects, Optus (SingTel’s fully-owned Australian subsidiary) fared much worse. Optus barely entered positive territory with a profit of only S$13m in 9M20 compared to a profit of S$459m in 9M19. This reflected structural weakness in its Australia fixed-line business amid migration to National Broadband Network (NBN), coupled with lower equipment sales and COVID-induced weakness.
  • Although StarHub's share price is down 10.6%, it has performed better than STI. StarHub’s mobile service revenue which remained relatively stable over 4Q18-4Q19, plummeted from 1Q20 onwards as the COVID-19 pandemic gripped the world, adding on to existing woes brought about by SIM-only plans and heightened competition. Enterprise business is proving to be a silver lining. The segment’s revenue increased 14% q-o-q in 3Q20 to S$162m, mainly due to higher revenues from regional ICT services as a result of the consolidation of Strateq, following the completion of the acquisition on 30 July 2020.
  • NetLink Trust's share price has gained 2.7% year-to-date, outperforming the STI. Lower availability of contractors affected NetLink Trust’s diversion revenue due to stoppages of works nationwide. Diversion revenue will continue to be spread over the next 6-9 months as some construction works are being pushed back. Meanwhile revenue from ducts and manholes dipped due to lower completion of joint projects. However, due to the relative resilience of the stock, NetLink Trust has outperformed the STI.

Segmental revenue breakdown (analysis based on calendar year)

  • SingTel – While SingTel does not report total Singapore revenues separately, the company provides a breakdown of Singapore consumer and enterprise revenues. Singapore consumer revenues, contributed ~12% of SingTel’s total revenue. Singapore enterprise revenues made up a whopping ~31% of 9M20 group revenue. Mobile service revenue is the key component, contributing ~45% of Singapore consumer revenue, followed by sale of equipements and fixed broadband.
  • StarHub - Enterprise revenue has surpassed mobile service revenue as the largest component of StarHub’s total revenue, accounting for ~32% of total revenues in 9M20. A year ago, in 9M19, enterprise revenues made up only ~24% of total revenues while mobile services took up ~33%.

Mobile services (analysis based on calendar year)

  • With the hope of a vaccine becoming viable by early FY21F, COVID-19’s shadow is likely to be slowly lifted, allowing mobile service revenue to stabilise in FY21F. Many countries are hopeful that a vaccine to combat COVID-19 will be viable from early FY21F onwards. Once the vaccine is available, inbound and outbound travel is likely to somewhat recover over FY21F. In FY20F, roaming revenue in Singapore (15-20% of FY19 mobile revenue) was the biggest casualty followed by prepaid mobile revenue (15-20% of FY19 mobile revenue).
  • In FY21F we expect roaming revenue to recover by ~50% compared to FY20F as the apprehension to travel by both business and leisure tourists slowly lifts. Prepaid mobile revenues too should grow by ~10%, partly due to our expectations of some foreign workers returning, despite tourism taking longer to recover. As such, we expect mobile service revenues to stabilise in FY21F, compared to a normalised (excluding COVID-19 impact) 7-8% decline in mobile services in FY20F. Our expectation of stable y-o-y mobile service revenue in FY21F is backed by ARPU stabilising in 3Q20.

We expect TPG, Singapore’s fourth mobile network operator, (MNO) to achieve ~2.0% and ~4.0% market share by FY21F and FY22F respectively.

  • In December 2018, TPG Singapore launched a free service trial which was made available to new users and this ceased on 31 March 2020. TPG Singapore launched its first paid plan on 31 March 2020; a SIM-only 4G postpaid mobile plan for S$10 valid for 30 days. As at 30 April 2020, TPG Singapore had ~7,000 paying subscribers and ~412,000 (vs. ~300,000 in October 2019) free trial users, accounting for ~4.4% of Singapore’s mobile customer base.
  • Thus, if TPG performs as per management expectations, the telco is likely to generate ~S$24m (S$10 ARPU, 200,000 subscribers) in revenue in FY21F and S$58m (S$12 ARPU, 400,000 subscribers) in FY22F and gain ~2.0% and 4.0% market share respectively.
  • However, without a nationwide 5G licence, we cannot identify a reason for TPG to stay in a loss-making business with bleaker prospects in a 5G world, beyond FY22F. Although TPG Singapore submitted a proposal to the IMDA to acquire spectrum in the 3.5 GHz band and one of the two nationwide 5G licences, the IMDA announced in April 2020 that TPG Singapore was not successful. Instead TPG Singapore is only eligible to apply for and be allocated up to 800 MHz of mmWave spectrum for localised 5G rollouts at the end of 2020. Without a nationwide 5G licence, TPG’s network will not be future proof as there will be 5G coverage across at least half of Singapore by the end of FY22. As such, we cannot identify a reason for TPG to stay in a loss-making business with bleaker prospects in a 5G world, beyond FY22F.

5G commercial deployment in FY21F to be the silver lining for the mobile segment; incumbent telcos’ revenues to be buoyed by 5G over the next five years.

  • The commercial 5G launches in South Korea have shown encouraging signs when it comes to reversing the decline in average revenue per user (ARPU).
  • Despite COVID-19, South Korean MNOs are flattening the ARPU curve and uplifting mobile service revenues. Prior to the launch of 5G services, South Korea’s MNOs were experiencing rapid q-o-q declines in ARPU. Since launching 5G services, SK Telecom and KT Corp have stabilised the decline in their ARPU despite the COVID-19 pandemic.

Unlike 4G, 5G rollout in Singapore will be gradual.

  • Although 5G rollout is slated to start from 2020 onwards, IMDA states that only ~50% coverage will be possible by 2023 as the key 5G spectrum 3.5GHz will be available for use only by 2021.The 5G rollout is much more gradual compared with 4G. Note that the 4G network coverage requirement for TPG was 100% nationwide outdoor coverage in just 12 months of spectrum rights commencement. The slower rollout can be explained by a lack of decent revenue opportunity in the consumer space despite high 5G capex requirements.
  • Singapore is opting for a standalone (SA) 5G network. Singapore already has a strong 4G market and also enjoys ~90% fibre penetration. Hence, the appeal of non-standalone (NSA) deployments simply for higher speeds and FWA for Singapore is much less. The SA 5G deployment is the only form that would allow Singapore to realise its ambition of developing a vibrant 5G ecosystem, nurturing a pool of talent surrounding 5G and leading innovations in the new 5G era.

SingTel has had a head start in deploying its 5G network.

  • Singapore's 5G networks are being built by SingTel and, separately, a joint venture between StarHub and M1. On 8 October, SingTel launched Singapore’s first 5G standalone (SA) trial network for enterprises. The network, which utilises 3.5GHz spectrum and Massive MIMO (multiple-input multiple-output) technology, provides enterprises with early access to 5G to develop and trial run 5G solutions.
  • StarHub and M1 have incorporated a new joint venture (JV) company, Antina to jointly build and operate a 5G SA network. The JV has completed the identification of 5G base station sites with site preparation and installation well underway. In addition, the implementations of 5G standalone core network and transmission network to serve the new 5G base stations are also in progress.

Enterprise (analysis based on calendar year)

Singtel’s 9M20 enterprise revenues shrank by 3.6% y-o-y to S$3,531m.

  • This was largely due to improvements in SingTel's ICT revenue being insufficient to counteract the decline in enterprise voice revenues and data & internet revenues.
  • Mobile service revenue declined by 28% y-o-y while data & internet services declined by 5.5%. Information and communication technology (ICT) revenues grew 6.9% y-o-y in 9M20 despite project delays and deferments during March-July 2020.
  • ICT revenues are generated from managed services, business application services, cyber security and communications engineering. The increase in ICT revenues was driven by system infrastructure services, cloud and maintenance projects, as well as higher data centre revenue. COVID-19 has presented SingTel with new opportunities such as the implementation of stay-home notice smart tagging platform and development of new temperature self-check kiosks. ICT accounted for ~56% of SingTel's Singapore enterprise revenues in 9M20.
  • To further develop its enterprise business, in October 2020, SingTel launched Singapore’s first 5G standalone trial network for enterprises at its 5G Garage testing facility. Singapore enterprise 9M20 EBITDA margin was at a healthy 30% (vs. Singapore consumer 9M20 EBITDA margin of 33%) compared with Australia enterprise 9M20 EBITDA margin of 8.0%.
  • In FY21F, we expect SingTel’s enterprise revenue to re-enter growth territory with a low single-digit y-o-y rise as the impact of COVID-19 on businesses wanes.

Meanwhile at StarHub, enterprise revenues increased by 9.0% y-o-y in 9M20 to S$457.5m.

  • This was mainly due to higher revenues from cyber security services and regional ICT services. The consolidation of Strateq following the completion of the acquisition on 30 July 2020 helped the enterprise segment’s revenues to improve further. In FY21F, StarHub plans to utilise Strateq to actively pursue growth in areas such as cloud services, data analytics and software-as-a-service (SaaS) to tap into the growing digitalisation trends.
  • This was partially offset by lower data & internet services, managed services and voice services. Managed services revenue in 9M20 declined by 22% y-o-y due to fewer project completions and delayed customer spending on network solutions, cryptographic and digital security projects due to the COVID-19 impact. Enterprise voice services in 9M20 suffered the same fate, declining by 21% y-o-y. Data & internet service revenue in 9M20 declined 1.1% y-o-y mainly due to renewals of domestic leased circuits at lower rates, partially offset by a one-off revenue earned of S$10m from the delivery of data transmission equipment in 2Q20.
  • In FY21F, we believe that StarHub will be able to grow its enterprise business revenue by a mid-teen rate y-o-y as the impact of COVID-19 on managed and voice services wanes and delayed ICT projects pick up.

Pay-TV (analysis based on calendar year)

SingTel’s Pay-TV revenues have remained relatively stable since 1Q18.

  • SingTel’s Pay-TV revenues continue to be relatively stable despite a minor dip over the last two quarters due to COVID-19 impact, resulting in lower advertising sales revenue.
  • Over the last couple of years, SingTel has opted to compensate for the expected decline in residential TV customers by growing the OTT (CAST/ TV Go) customer base. SingTel introduced TV Go in July 2013 and CAST in July 2016, recognising early the role of OTT in home entertainment. In 9M20, OTT customer base grew by 44,000 (+27% y-o-y) to 206,000. OTT customers now represent ~35% of SingTel'stotal Pay-TV customers, compared with ~29% a year ago. We expect SingTel’s Pay-TV revenue to remain stable over FY21F.

We expect StarHub to report ~S$190m of Pay-TV revenues in FY21F, indicating stable y-o-y revenues.

  • Pay-TV revenues at StarHub grew 0.4% q-o-q in 3Q20, the second consecutive quarterly indication of stabilising revenues. This was despite a lower subscriber base, the cable to fibre migration in FY19, and the COVID-19 impact on commercial revenue and advertising due to cost management by commercial clients.
  • The decline in Pay-TV subscriber base slowed down in 3Q20 to a loss of only 3,000 subscribers largely due to the promotional activities offered during 9M20. StarHub’s Pay-TV ARPU witnessed a growth of S$1 q-o-q to S$40 during 3Q20. With the completion of subscriber migration in October 2019, coupled with the intense promotion campaigns to retain customers, the churn rates have moderated to 0.7% for Pay-TV. The management expects to rein in content costs with a variable costing model during FY20/21F to mitigate the impact of Pay-TV promotional offers.
  • Pay-TV revenues plunged 20% y-o-y over 9M19, driven by subscriber losses during the cable migration process, which marked its end in 3Q19. StarHub has since met management expectations of a stable subscriber base without major churn. Management has also indicated that the subscribers who migrated are on two-year contracts.
  • In FY21F, we expect StarHub to report ~S$190m of Pay-TV revenues, indicating stable y-o-y revenues, and improve on its profitability. In FY19, Pay-TV profitability was at stake due to intense promotional activities offered during the year to encourage consumers to migrate from cable to fibre. However, in 9M20, we believe that the absence of these promotional activities would have helped Pay-TV division to recover somewhat despite the change in subscriber mix to include more OTT subscribers. We expect these measures taken over the last one year to continue to improve the profitability prospects of the Pay-TV segment in FY21F.
  • The move to concentrate more on OTT subscribers commenced with the introduction of Go Max, an all-in-one OTT package in September 2019. More recently, in 3Q20, StarHub launched a new hybrid entertainment platform named StarHub TV+. StarHub TV+ integrates live TV channels with OTT programmes over an interactive interface via a new plug-and-play StarHub TV+ box or a mobile app, enhancing StarHub’s content delivery and entertainment offerings. Customers can choose from six different StarHub TV+ Passes according to their preferred genre, and also enjoy the freedom of enhancing their subscription with add-on packs and third-party streaming apps.

Fixed Consumer Broadband (analysis based on calendar year)

  • SingTel’s 9M20 fixed consumer broadband revenues grew by 3.2% y-o-y to S$192m. SingTels fixed consumer broadband revenues have been largely stable on a q-o-q basis despite operating in a highly competitive market. In FY21F, we expect SingTel to grow its fixed consumer broadband revenues by low-to-mid single digits.
  • M1, StarHub, MyRepublic, ViewQuest and WhizComms are the other providers that compete with SingTel in the fixed consumer broadband market.
  • StarHub’s 9M20 fixed consumer broadband revenues declined by 3.7% y-o-y to S$130.4m. This was mainly due to lower ARPUs and a one-time 20% rebate on home broadband monthly fee extended to customers due to a service disruption in April 2020. Excluding the one-time rebate, revenue would have been S$3.4m or 2.5% lower y-o-y in 9M20. In FY21F, we expect StarHub’s fixed consumer broadband revenue to remain relatively stable.

Other – Digital banking licence

  • Grab-SingTel-led consortium wins Singapore digital banking licence. On 4 December 2020, the Monetary Authority of Singapore (MAS) announced four successful digital banking applicants. The Grab-SingTel-led consortium was awarded the licence to operate as a Digital Full Bank (DFB). Operations are expected to commence by early 2022 and MAS has asked all the successful applicants to meet relevant prudential requirements and licencing pre-conditions before granting the respective banking licences.
  • Start of something exciting in the long term for Grab-and-SingTel-led DFB. Grab will own 60% of the JV while the remaining 40% will be held by SingTel. The use of innovation in technology, value-added services in product offerings, and delivering high class financial services are some of the key requirements outlined by MAS. The Grab-and-SingTel-led JV seems to tick all the boxes. The target market should be digital-first users and small-and medium-sized businesses which struggle to obtain funding.
  • Kakao Bank in Korea secured 2.6% share of the consumer market (excluding mortgages) within three years from its launch and achieved breakeven in two years. According to our estimates, Kakao Bank’s loan portfolio of KRW17.3tr in 2Q20 translates into ~2.6% of the South Korean consumer market excluding mortgages. Kakao Bank achieved profit breakeven in 1Q19, and secured a 9.5% profit before tax margin in 1Q20 which rose to 13.3% in 2Q20. One of the major factors which contributed to Kakao Bank’s success was the presence of an ‘everyday app’ in Kakao Talk which is used by 85% of the South Korean population.
  • Grab-SingTel JV penetration could be slower that seen for Kakao Bank in Korea for three key reasons. Firstly, Kakao Talk along with Kakao Pay are more entrenched as everyday apps compared to Grab and Grab Pay. Secondly, local banks in Singapore are more digitally advanced than local banks in South Korea. Thirdly, Singapore is a more mature market with almost one-tenth of South Korea’s population. As such, the Grab-SingTel consortium could take five years to achieve what Kakao Bank has achieved in 2.5-3 years.
  • A successful DFB in Singapore might grab a market share of 2-4% in five years and achieve profit breakeven in 4-5 years. Ceteris paribus, MAS expects DFBs to meet the minimum paid-up capital of S$1.5bn and become fully functional by the fifth year of operations. Excluding mortgages, we project a successful DFB to secure 2-4% market share of the consumer market in Singapore by FY25F. This is a reasonable assumption as Kakao Bank achieved 2.5% share within three years from its launch. Our back of the envelope numbers assume 10-20% profit before tax (PBT) margins (compared to 50%-plus PBT margins generated by local banks), supported by the fact that Kakao Bank had a 13.3% margin in 2Q20. Based on S$1.5bn minimum paid-up capital, this would translate into a return on equity (ROE) of 1-3.5% which is comparable to Kakao Bank’s ROE.
  • A successful DFB in Singapore is likely to be valued at ~S$1.5-3.0bn by FY25F. While some of the more successful digital banks such as Kakao Bank in Korea trade at 3-4x book value (BV), we expect less bullish valuations of 1-2x BV for a successful DFB in Singapore depending on the market share and PBT margins. Assuming 1-2x price-to-book value (PBV) on equity paid-up capital of S$1.5bn, we estimate that DFB could secure a S$1.5-3.0bn valuation by FY25F.
  • See also recent report: SingTel - DBS Research 2020-10-27: What Could A Digital Banking Licence Mean?

Singapore Telco Sector Stock Picks

All 3 stocks offer a ~5% dividend yield; we prefer SingTel due to superior earnings growth prospects.

  • We have turned towards a dividend-based analysis in the wake of COVID-19 to analyse the resilience of Singapore telcos. SingTel, for example, pays out almost 100% of its free cash flow (FCF) as dividends to its shareholders now versus 70-80% of FCF a decade ago. Hence, we prefer to use historical dividend yields as the primary valuation metrics rather than historical price-to-earnings (PE) ratio.

Singtel is our top pick for associate recovery, leading to a much superior FY21F-23F CAGR of ~13%, coupled with a ~4.8% dividend yield.

  • We expect SingTell’s earnings to benefit from
    1. stabilisation of core EBITDA in FY22F (vs 23%+ decline in FY21F), coupled with a continued rise in associates’ profit.
    2. consensus projects 40%+ upside potential for Bharti Airtel’s share price which comprises ~39% of our SingTel valuation.
    3. SingTel could divest assets worth ~30 cents per share – Optus’s towers in the near term followed by others in 2-3 years.
  • As such, we project SingTel’s earnings to grow at a FY21F-23F CAGR of ~13%.
  • Bharti Airtel is set to lead the recovery in associate pre-tax contribution in FY21F/22F. Pre-tax contributions from associates is a critical factor driving SingTel's share price, pushing SingTel towards growth territory and attempting to offset weaknesses in SingTel’s core earnings.
  • We expect Bharti Airtel to contribute to ~22% of associate pre-tax profit in FY22F. Bharti Airtel is set to be the key driver due to its improved operational performance where the Indian telco’s ARPU in 2Q21 reached Rs162 (the highest in over three years). In addition, Bharti Airtel has exhibited stronger subscriber growth, adding 14.3m new subscribers where most of the users are converting from legacy networks to the 4G network. The Indian telco industry is expecting a second tariff within a span of one year (last tariff hike was implemented in December 2019) for the survival of Vodafone Idea. This could bode well for Bharti Airtel as it would continue to translate into incremental increases in ARPU over FY21F/22F.
  • Even if we assume that a second tariff hike does not take place, Bharti Airtel could still achieve an ARPU of Rs200 by eventually shifting most of its customers from 2G to 4G. The basic entry plans for 4G subscribers are from ~Rs200 upwards. Bharti Airtel’s performance over the last year suggests that the telco is actively working on migrating subscribers from 2G to 4G.
  • In addition, Bharti Telecom used to contribute S$10-15m in losses every quarter as associate pre-tax contribution to SingTel. These losses are entirely made up of interest charges on its borrowings. However, in May 2020, Bharti Telecom engaged in a deleveraging exercise in order to finance its debt. Going forward, we believe that Bharti Telecom will not be contributing any losses to SingTel.
  • We expect Bharti Airtel to implement another ~20% y-o-y tariff hike in FY21F with its ARPU increasing by 33% over 2Q21A-4Q23F. As such, Bharti Airtel’s anticipated turnaround will result in its pre-tax profit contribution to SingTel increasing by ~S$470/430 in FY21/22F respectively.
  • Telkomsel’s weaknesses likely to continue over FY21F/22F. Telkomsel is SingTel’s biggest associate and in FY20A contributed ~67% of SingTel’s total associate pre-tax contributions. However, Telkomsel continues to cede market share to XL Axiata, Indosat and other smaller players in Indonesia such as Smartfren and Hutchison 3. Weak cellular business and revenue market share losses are expected to reduce its overall contribution to SingTel to 51%/40% in FY21/22F respectively. We have been rather aggressive in cutting our numbers for Telkomsel.
  • Globe takes a bigger hit than AIS due to COVID-19 movement restrictions; Globe’s competitive concerns still at bay. Similar to the others in the industry, Globe and AIS were affected by COVID-19 related movement restrictions. In the case of Globe, in September 2020, the telco’s mobile customer base declined 20% y-o-y, and 12% compared to March 2020, mainly from the decline in acquisitions following the COVID-19 pandemic. As a result, Globe’s top line suffered, despite being partly mitigated by higher take-up of Globe’s Home Broadband products. On a positive note, we expect competition in the Philippine telecom market to remain stable over the next 6-12 months, with the commercial launch of a third telco, Dito Telecommunity, likely to take place no earlier than 2H21 given the pandemic. Dito received its telco licence in July 2019 after a six-month delay in obtaining regulatory approval.
  • Fitch Ratings expects AIS's service revenue to decline modestly by 1-2% in FY20F due to the economic downturn amid the coronavirus pandemic, outperforming GDP forecast of 7-8% contraction for Thailand. At AIS, in September 2020, mobile customer base was down by only 1.5% compared to September 2019, amid the difficult business conditions. AIS benefits from economies of scale due to its large subscriber base (revenue market share of around 45-50%), a strong brand and extensive network coverage.
  • Taking these factors into consideration, we now expect associate pre-tax contribution growth of 13%/17% y-o-y in FY21/22F respectively.
  • SingTel’s core business in Singapore and Australia is valued at only 5 cents per share compared to our fair value of 46 cents per share. The fair value of SingTel’s associates is S$2.54 per share, and S$2.29 per share after factoring in a 10% holding company discount. This implies that the market is valuing SingTel’s core business in Singapore and Australia at only 5 cents compared to our fair value of 46 cents per share. Asset divestments could unlock the trapped value. We also believe that associates’ contribution should improve in FY21F led by Bharti Airtel, leading to a further rise in associate value. In addition, SingTel could divest assets worth 30 cents per share - Optus’s towers in the near term followed by its data-centre and digital businesses in 2-3 years.
  • We project FY21F/22F dividend per share (DPS) of 10.9 cents/11.5 cents for SingTel based on 100%/90% payout ratio respectively with a scrip dividend scheme in place. If SingTel’s majority shareholder Temasek accepts scrip dividends, SingTel’s net debt-to-EBITDA could improve to 1.8-2.0x in FY22F from 2.4x currently, easing any pressure on its credit rating.
  • See SingTel Share Price; SingTel Target Price; SingTel Analyst Reports; SingTel Dividend History; SingTel Announcements; SingTel Latest News.

NetLink Trust offers a decent 5.3% yield but upside potential is limited.

StarHub’s 4.7% dividend yield is attractive; yet earnings need to stabilise first.

  • On a positive note, StarHub is on track regarding its three-year cost savings programme. As at 2Q20, StarHub has executed ~75% of its S$210m cost savings programme. Taking the progress of the cost savings programme, pick-up in equipment sales and contribution from newly acquired Strateq in the enterprise business segment, we recently raised our FY21/22F earnings forecasts by 2%/3%. However, StarHub’s mobile services revenue continues to decline due to SIM-only plans and heightened competition. While we believe that TPG does not have a business case in Singapore, the capital injection of ~S$170m into TPG might help it to sustain for another two years while industry consolidation could be delayed to FY22/23F. In addition, though 5G-related capex is relatively low due to JV with M1, these savings might not translate into dividends if StarHub chooses to go for acquisitions.
  • While StarHub’s earnings decline has slowed down, we do not expect its earnings to stablise till FY22F. Hence, we project StarHub’s earnings to decline at a FY20F-22F CAGR of 6.5%.
  • See StarHub Share Price; StarHub Target Price; StarHub Analyst Reports; StarHub Dividend History; StarHub Announcements; StarHub Latest News.

See the 24-page PDF report attached for complete analysis on Singapore telecom sector.

Sachin MITTAL DBS Group Research | https://www.dbsvickers.com/ 2020-12-11
SGX Stock Analyst Report BUY MAINTAIN BUY 2.750 SAME 2.750