UOB Kay Hian is keeping an "overweight" rating on Singapore's telecommunications sector, as the country's 5G standalone (SA) rollout by the three telco players Singapore Telecommunications (Singtel), StarHub and M1 is on track to achieve 50% population coverage by end-2022 and nationwide coverage by 2025.
Based on a network survey by nPerf, Singtel had a head start with the launch of 5G SA coverage back in 4Q2020. As for the StarHub-M1 joint venture (named Antina), the 5G SA rollout started with base station identification and installation. At this juncture, StarHub has achieved more than 70% of outdoor 5G NSA coverage.
Singtel and Antina have appointed Ericsson and Nokia as their respective 5G core provider. Based on a report from Open Signal, Singapore is ranked in the middle of the Asia Pacific region (APAC) market for 5G download speed with 2.9x faster download speed vs the existing 4G network. Also, Singapore appears to rank second (only to South Korea) for the 5G game experience at this stage.
See also: StarHub and U Mobile successfully complete 5G standalone multi-party cross-border video call
Lead analyst Chong Lee Len says, "We expect the competitive landscape to remain benign as incumbents focus on monetising 5G services."
Thanks to 5G, the telcos are seeing an encouraging trend of take-up of premium handset bundles from consumers since 4Q2020, such that they have been meeting internal targets.
"This, we believe, will remain the trend in 2H2021. Importantly, the introduction of 5G services will help to partly offset average revenue per user (ARPU) dilution from SIM-only plans," says Chong, who notes that smartphone users are embracing the improved user experience with 5G.
To be sure, Chong cites StarHub in 1Q2021 demonstrating sequentially stable blended ARPUs (postpaid: $28/month, prepaid: $10/month) and believes that this is due to a benign competitive landscape, and an uplift from 5G bundles helping to partly offset ARPU dilution. Singtel also mentioned that 2HFY2021 sales of equipment were 41% higher h-o-h and 6% higher y-o-y due to higher sales of 5G handsets.
Meanwhile, the 5G consumer bundles appear to be encouraging thus far, helping the telcos partly mitigate ARPU dilution from SIM-only plans.
Pulling away from TPG’s attractive data pricing packages, StarHub and Singtel are offering 5G embedded offers.
For one, StarHub recently launched a 5G SIM-only product called Mobile+ SIM Only. The most affordable plan, at $38 monthly, comes with 70GB of data, as well as free 12 months of Disney+ subscription. This product is $10/month higher than its 1Q2021 postpaid ARPUs.
Singtel on the other hand is offering 5G services via its XO Plus plans. With the exception of XO Plus 50 (for $50/month), 5G access is available to all XO Plus plans (ranging from $68- $168/month). In contrast, Singtel’s postpaid ARPUs are hovering at $29/month in 2HFY2021.
To that end, given attractive sector valuation and earnings recovery beyond 1H2021, Chong believes that earnings recovery should be more certain, given the benign competitive landscape and relatively better control of Covid-19 cases. "We also believe the nationwide 5G rollout will help the incumbents sustain market share," he adds.
However, pronounced earnings uplift from the enterprise business may take a longer time to bear fruit as telcos continue to explore new business applications for 5G.
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UOBKH's top "buy" picks within the telco sector are undervalued Singtel and defensive NetLink NBN Trust.
With a target price of $2.84, Chong believes earnings weakness is largely priced in for Singtel as the stock trades close to 1SD below its 5-year mean EV/EBITDA.
Seperately, NetLink offers good earnings and visibility and a sustainable dividend yield of 5% over FY2022-2023. ". The stock is defensive amid external volatility with 80% of group revenue derived from a 7% regulated return over 2018-2022," says Chong, who has a target price of $1.08 on the stock.
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