SINGAPORE (Jan 14): While fifth generation wireless technology for digital cellular networks, or 5G, has been the buzzword in the telecommunications industry, RHB Group Research believes it is not likely to be a game changer for Singapore telcos.
“While Singapore will be one of the first in the region to rollout 5G on the mid-band spectrum (3.5GHz), we see little impact from 5G in the medium term,” the brokerage says in a sector report on Jan 14.
This is because Singapore already sees extensive fibre penetration and adoption nationwide, the brokerage says.
Besides, it points out that the 5G rollout will be mostly confined to selected-use cases, such as enterprise verticals and smart solutions for cities.
Meanwhile, the Singapore telecommunications industry continues to face heightened competition and earnings pressure, which sees RHB keeping its “neutral” stance on the sector.
“We expect mobile revenues and earnings to remain under pressure in 2020 due to protracted weakness in usage revenues and data competition,” the brokerage says.
However, RHB believes that the sector’s risk-reward profile now appears “largely balanced”.
“The sector’s 1-year forward EV/EBITDA at -1 standard deviation is fair, supported by telcos’ decent yields of more than 5%,” it adds.
Looking forward, the brokerage predicts that the telcos’ EBITDAs are likely to remain “relatively steady” amid a tight focus on operating expenditure, digitisation initiatives, and lower traffic costs.
RHB also notes that Singtel has recorded some $263 million in cost savings in 9M19, while StarHub has booked cost savings of more than $120 million over the same period.
At the same time, the brokerage warns that competition remains the key downside risk for the telcos.
“The Singapore mobile market is hyper competitive and fragmented, with SIM penetration at more than 150%,” it says. “The number of MVNOs has mushroomed over the past two years and had exceeded the four MNOs in the market, with more likely to join the fray.”
RHB has “neutral” calls on both Singtel and StarHub, with price targets of $3.50 and $1.44 respectively.
“Our preferred pick remains Singtel for its earnings diversity and dividend certainty, which should augur well in a slow-growth and macro-infused environment,” RHB says. “Improving tariff dynamics in India and Indonesia are its key re-rating catalyst.”
As at 3.31pm, shares in Singtel are trading 2 cents lower at $3.25 while shares in StarHub are trading 1 cent higher at $1.47.
