How TPG is about to disrupt Singapore’s mobile industry
By Michelle Zhu / theedgemarkets.com.sg | December 19, 2016 : 10:50 AM MYT
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SINGAPORE (Dec 19): UOB Kay Hian is maintaining its “underweight” call on the telecommunications (telecom) sector now that TPG Telecom has emerged victorious as Singapore’s fourth mobile operator.
The research house is keeping its “buy” recommendation on SingTel at a target price of $4.53 given that its Singapore-based mobile business accounts for 13% of group revenue, while reiterating its “sell” calls on M1 and StarHub at target prices of $1.76 and $2.40 for their vulnerability to increased competition ahead.
In a report last Thursday, analyst Jonathan Koh notes that competition in Singapore’s telecom sector has already intensified ahead of TPG’s entry as fourth mobile operator, as all three incumbents introduced “attractive” data upsize options this year.
“We expect this trend to continue. Incumbents are likely to dangle attractive promotions to attract consumers to re-contract earlier, but get locked-up in new 2-year contracts ahead of the launch by TPG,” says Koh.
Recalling “disappointing” results for both M1 and StarHub in 3Q16, the analyst reckons earnings for these two companies are likely to continue facing pressure. He also believes the two telecoms’ respective 2017F dividend yields of 5.7% and 6.9%, although attractive, could be “deceiving” as he estimates 2019F dividend yields will moderate to 4.3% and 5.5% respectively.
“The 10-year Singapore government bond yield has risen 65bp to 2.83%. Yield curves have also steepened. Higher bond yields make yield plays, such as telecoms, less attractive as yield spreads narrow,” he adds.
As at 10:25am, shares of SingTel are trading 0.8% higher at $3.69. M1 is up by 0.3% at $1.96, while StarHub is down 1.1% at $2.78.
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