SINGAPORE (Aug 30): Analysts have expected Singapore’s incumbent telecommunications operators Singapore Telecommunications (SingTel), M1, and StarHub to see their businesses disrupted following the entry of TPG Telecom as the republic’s fourth mobile operator.
In particular, the two smaller players – M1 and StarHub – were expected to see their earnings slashed as TPG joins the fray.
TPG is expected to begin its mobile operations here in 2018, after beating MyRepublic to emerge victorious in the race to become Singapore's fourth mobile operator in December last year.
See: TPG Telecom wins race to become Singapore’s fourth telco
But UOB Kay Hian analyst Jonathan Koh believes the threat from TPG is fading.
“TPG’s positioning in the budget segment does not overlap with M1’s and StarHub's focus on high-value subscribers, especially those with high-intensity usage of data,” Koh says in a report on Monday.
According to Koh, TPG is seen as a “no frills mobile player” which focuses on pre-paid SIM-only mobile plans at affordable pricing in Australia.
“TPG may not be sustainably disruptive as Singaporean prefers post-paid mobile plans bundled with branded handsets,” he adds. “In addition, incumbent operators already offer attractively priced SIM-only mobile plans.”
At the same time, Koh opines that TPG could “naturally” accord a lower priority to its expansion to mobile in Singapore.
“TPG has upped the ante. Its operational and financial risks have increased as it rolls out mobile networks in both Australia and Singapore,” he says. “Australia would be TPG’s core market given the size and scale of its investments in spectrum and network infrastructure.”
As such, UOB is keeping its “overweight” rating on Singapore’s telecommunications sector.
The research house is keeping its “buy” call on M1 with a target price of $1.98, and its “hold” call on StarHub with a target price of $2.62.
Koh says that both M1 and StarHub will “vigorously defend its market share by offering attractive packages bundled with branded handsets and generous data upsize options.”
M1 and StarHub are forecast to trade at FY2017F PE of 13.5x and 16.8x, respectively.
M1 is expected to return a dividend yield of 5.9% in FY2017F, compared to StarHub’s 6.0%.
As at 3.01pm, shares in M1 are trading flat at $1.84, while shares in StarHub are trading 1 cent lower at $2.63.
