SINGAPORE (Aug 22): UOB KayHian says Apple’s iPhone 8 and 8 Plus are both “a blessing and a curse” for telcos M1 and StarHub.
As iPhone 8 is a “stunningly beautiful must-have” smartphone, the incumbent telcos are expected to leverage on the phone to lock in new and existing customers ahead of the entry of TPG Telecom which just missed the boat.
“We have trimmed our target prices for M1 to $1.98 and for StarHub to $2.62 to factor in the higher handset subsidies incurred for iPhone 8,” says Jonathan Koh who has a “buy” for M1 and a “hold” for StarHub.
iPhone 8 and 8 Plus are expected to launch in Sept 17, coinciding with the 10th anniversary of the iPhone.
The new smartphones look stunningly beautiful and have various exciting new features like curved edge-to-edge display with 2K resolution, stainless steel and glass body in black, silver and gold (copper) colours, a virtual home button, facial recognition security, inductive charging, 16-megapixel dual-lens camera with 3D-sensing capabilities, augmented reality capabilities, iOS 11 operating system and Apple A11 processor.
But this means the phones would have been priced at a premium of 7-26%. We expect iPhone 8 and 8 Plus with storage capacity of 128GB to be priced at US$799 or $1,087 (iPhone 7: US$749) and US$1,099 (iPhone 7 Plus: US$869) respectively.
We expect M1 and StarHub to leverage on the iPhone 8 and 8 Plus to sign up new customers and to attract existing customers to re-contract earlier, so as to lock in customers with new two-year contracts ahead of the entry of TPG Telecom in 2018.
“Incumbent telcos could induce customers to sign up/re-contract earlier by offering sweetened pricing for iPhone 8. Unfortunately, doing so would substantially increase handset subsidies in 4Q17 and 1H18,” says Koh.
Koh also expects the industry to consolidate from four to three players over the next 3-5 years. Unfortunately, in the near term, M1 and StarHub have to contend with higher handset subsidies caused by the launch of iPhone 8 and 8 Plus in Sept 17 as well as heightened competition with the impending entry of TPG Telecom in 2018.
These near-term headwinds have nevertheless been priced in. M1 has corrected 8.7% (down 21.2% from peak of $2.27) while StarHub has corrected 7.8% (down 17.3% from peak of $3.13) on a year-to-date basis.
In its FY17 forecast, M1 has a PE of 13.5x and a dividend yield of 5.9%. StarHub has a PE of 16.3x and a dividend yield of 6.2%.
As at 10.49am, shares in M1 is up 0.5 cent at $1.795 while StarHub is down 1 cent at $2.58.
