SINGAPORE (Oct 1): UOB Kay Hian is maintaining its “overweight” rating on the telecommunications sector in Singapore despite the launch of the new range of Apple iPhones – the XS, XS Max and XR.
Telcos typically suffer from hefty handset subsidies following the launch of flagship mobile phones. But analyst Jonathan Koh believes telcos here are unlikely to see this happen in 4Q18 from the launch of the new iPhone range, which he describes as “not a game changer”.
“It has been 11 years since the first iPhone was released,” says Koh in a report on Sept 27. “We believe the novelty of iPhone has faded.”
“Accounting wise, we should not see a spike in handset subsidies causing a trough in EBITDA margin during 4Q18,” he adds.
The way Koh sees it, the high prices of the new iPhones could be a barrier for consumers.
“The continued steep pricing could accelerate the shift towards SIM-only mobile service plans,” he says.
However, Koh does not foresee any disruption from TPG Telecom, a budget and no-frills player that is likely to focus on SIM-only mobile service plans. “[TPG] is unlikely to compete with the incumbent telcos on offering higher handset subsidies,” Koh says.
UOB Kay Hian is keeping its “buy” calls on all four companies in the telco sector: Singtel, StarHub, M1 and NetLink NBN Trust.
“Singtel provides a defensive shelter due to its geographical diversification. Mobile business in Singapore accounts for only 7% of group revenue if we include its proportionate share of its associates’ revenue,” says Koh.
However, the brokerage is lowering its target price for Singtel to $3.94 due to the recent depreciation of the Indonesian rupiah and the Indian rupee against the Singapore dollar.
As at 11.30am, shares in Singtel are trading flat at $3.24.
Meanwhile, it is keeping its target price of $1.92 on StarHub on the back of “improved” execution since Peter Kaliaropoulos took over as CEO in July.
“Within two months of his appointment, StarHub has scaled up in cyber security with the merger of Accel Systems & Technologies with Temasek’s Quann World to form Ensign InfoSecurity,” Koh says.
As at 11.30am, shares in StarHub are trading 1.6% lower, or down 3 cents, at $1.84.
In addition, the analyst believes interest from potential acquirers are likely to inject upward momentum for M1, which has a target price of $1.88.
Keppel Corporation and Singapore Press Holdings on Sept 27 announced a pre-conditional voluntary general offer for M1 at $2.06 per share.
See: SPH and Keppel in $2.06/share offer to privatise M1; Keppel seeking to privatise Keppel T&T with $1.91/share offer
As at 11.30am, shares in M1 are trading flat at $2.11, after surging from its last traded price of $1.63 before trading was halted for the announcement last week.
Finally, UOB has a target price of 95 cents on NetLink, which has a dominant market share of 90% for residential and 35% for non-residential fibre connections.
“Growth is projected at a three-year CAGR of 6.2% and 8.5% respectively in FY18-21,” says Koh.
As at 11.30am, units in NetLink are trading flat at 78 cents.
