SINGAPORE (April 5): The Info-communications Media Development Authority (IMDA) on Tuesday announced the winning bidders in the first stage of the General Spectrum Auction (GSA) for Singapore telcos.
But there were more losers than winners as a result of the bidding war, according to analysts.
The final spectrum prices were “shockingly high,” says CIMB Research analyst Foong Choong Chen in a Wednesday report.
The telco spectrum sale raised a total of $1.145 billion from all four bidders.
Singapore Telecommunications (Singtel) won the maximum allowed 75MHz of spectrum for $563.7 million; StarHub won 60MHz for $349.6 million; M1 won 30MHz for $208 million; while TPG Telecom won 10MHz of spectrum for $23.8 million.
(See: Telco spectrum sale raises $1.1 bil from all four bidders)
But aggressive bidding saw the final spectrum prices for the 700MHz and 900MHz bands overshoot their reserve prices by 4.7x and 6.6x, respectively.
“These huge premiums will have negative repercussions for StarHub and M1 even with conservative payment schedules,” says Maybank Kim Eng Research analyst Gregory Yap in a Wednesday report.
“Both will need to lower their dividends to keep gearing levels within what we deem to be comfort zones for them,” he adds. “By our estimates, M1 and StarHub will have to cut FY18E-FY19E dividends by 13-38%, leading to pedestrian yields in the low-3%.”
According to RHB Research Institute Singapore, M1 is expected to be hit hardest from the GSA bidding war.
“M1’s net debt/EBITDA stands to be the most impacted, with FY17 net debt/EBITDA set to rise to 1.76x from 1.1x,” says RHB’s Singapore research team in a Wednesday report. “We estimate that the impact on M1’s target price to be the greatest, potentially knocking off 11.2%.”
Meanwhile, RHB estimates StarHub’s net debt/EBITDA to rise to 1.5x from 0.97x, and Singtel’s net debt/EBITDA to rise from 0.94x to 0.87x.
RHB also expects StarHub and Singtel to see their target prices fall by 7.5% and 0.9%, respectively.
“The higher-than-expected final spectrum prices are certainly another negative development for the sector, especially for the smaller players,” says CIMB’s Foong.
CIMB, Maybank, and RHB are keeping their Singapore telco industry ratings at “underweight”, “negative”, and “neutral”, respectively.
Meanwhile, Singtel remains as the top pick for the industry.
“Singtel is unscathed as cash on hand is more than adequate to absorb the additional spectrum cost,” says Maybank’s Yap.
Maybank is keeping its “hold” call on Singtel with an unchanged target price of $3.72. CIMB has Singtel at “add” with a target price of $4.10, while RHB has a “neutral” call on Singtel with a target price of $4.00.
Maybank is keeping its “sell” recommendations on StarHub and M1, with target prices of $2.36 and $1.75, respectively.
CIMB is keeping its “reduce” ratings on StarHub and M1, with target prices of $2.60 and $1.80, respectively.
RHB is keeping its “neutral” calls on StarHub and M1, with target prices of $2.70 and $2.05, respectively.
As at 1.11pm, shares of Singtel are trading 2 cents lower at $3.90, shares of StarHub are trading 3 cents lower at $2.85, and shares of M1 are trading 3 cents lower at $2.13.
