SINGAPORE (Aug 23): RHB is maintaining its “neutral” call on all three Singapore telcos as its 1H17 results reflect the still-keen competition in the market and persistent structural mobile service revenue (MSR) weakness.
The three mobile network operators (MNOs) reported an aggregate core EBITDA contraction of 3.1% y-o-y in 2Q17, due to continuing stiff competition, higher handset costs and structural roaming revenue pressure.
However, MSR dropped 2.5% y-o-y in 2Q17, marking the seven consecutive quarter of y-o-y contraction.
Singtel’s Singapore MSR fell the most, dropping 4% y-o-y, followed by StarHub falling by 1% and M1 recording a gain of 2.1%.
Despite that, Singtel remains to be the research house’s preferred pick, while its forecasts for M1 and StarHub have not factored in the potential network collaboration, which remains under discussion.
In a Wednesday report, RHB says, “Overall industry MSR dropped 2.1% in 1H17, ie. trending within our expectation of a 1-3% decline for 2017.”
Despite greater data usage and a higher number of subscribers exceeding their data bundles, the telcos’ postpaid revenue for 2Q17 fell 1-7% y-o-y from the higher take-up of SIM-only plans and roaming revenue pressure.
“Singtel and StarHub’s prepaid ARPUs have held up well for the past three quarters, but M1’s ARPU continued to slip,” says RHB.
Due to major handset launches this year, such as the iPhone 8 and Samsung Galaxy Note 8, RHB expects subscriber acquisition costs (SAC) to remain elevated for 2H17, while the telcos would look to defend their MSTs and lock in subscribers ahead of TPG Telecom’s entry next year.
M1 reported the highest SAC among the three telcos at 15% y-o-y in 1H17.
“With the exception of Singtel which could look to return part of the over $2 billion in proceeds (including the settlement of a shareholder loan) raised from the IPO of Netlink Trust in 2H17, we do not foresee major dividend surprises by the telcos,” says RHB.
RHB reckons that the competitive risks from new entrants have been priced in to a certain extent with sector valuations at a fair 10.1 times weighted FY18 EV/EBITDA.
As at 9.53am, shares in Singtel, StarHub and M1 are trading at $3.76, $2.61 and $1.80 respectively.
