NETLINK NBN TRUST (SGX:CJLU)
STARHUB LTD (SGX:CC3)
SINGTEL (SGX:Z74)
Singapore Telcos - What To Expect In Upcoming Results?
Short-term speed bumps but momentum positive
- We expect SingTel (SGX:Z74)’s and StarHub (SGX:CC3)’s earnings momentum to remain broadly positive as economic activity continues to ramp up with removal of most COVID-19 measures in key regional markets and strong contribution from newly integrated businesses. We reckon that the Optus’ data leak in Australia is priced into SingTel.
- StarHub’s EBITDA margin is set to narrow further as opex rises again in 2H22 while NetLink Trust (SGX:CJLU) will likely be largely stagnant amid the ongoing regulatory fibre pricing review.
- Our top sector pick remains SingTel as we expect 3Q earnings growth of 1.7% q-o-q on the return of international roaming and strength in associates.
Attractive plays amid elevated market volatility
- The telcos sector remains a proxy to regional economic recovery as roaming revenue is improving and we are likely to see stable mobile service revenue among the incumbents.
- Despite Optus’ near-term setback, SingTel’s dividends for 1H23E are unlikely to be affected amid ample proceeds (earmarked S$5b) from its asset recycling program to absorb these costs while maintaining its ability to pay sustainable dividends (FY23E: 4% dividend yield).
- Boosted by contributions from JOS and MyRepublic, we think that enterprise and broadband will remain key drivers for StarHub and it remains on track to beat its guidance for 3Q23E.
Data breach and inflation weigh on sentiment
- While mobile revenue growth is resuming, we think momentum will be gradual. Consumers’ shift to SIM-only plans amid stiff market rivalry and high inflation may prolong mobile postpaid ARPU woes, likely negating any roaming sales boost.
- Recent developments on Optus’ data security breach suggest a regulatory fine of AUD2.2m to be incurred, based on Australia’s existing Privacy Act. But we see little earnings impact with SingTel’s strong operating cashflow (S$2.2m) and heightened contribution from its regional associates.
- StarHub’s lofty IT transformation outlay, mostly treated as opex to fuel its multi-year DARE+ program will likely lead to a drop in EBITDA margin to 17.4% in 2H22 from 24.6% in 1H22.
- NetLink Trust’s dividend spread over bond yields and other interest-yielding assets has not widened on rising interest rates. While this reduces its attractiveness as a safe haven, we expect this to continue as it awaits regulatory decision over fiber pricing.
Kelvin Tan
Maybank Research
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https://www.maybank-ke.com.sg/
2022-10-26
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