SINGAPORE (Sept 20): Maybank Kim Eng is maintaining its “negative” view on the Singapore telco sector in anticipation of more competition from FY18 onwards.
This is despite all three incumbents having unveiled their subsidised handset pricing plans, in time for the release of the new iPhone 8 and X.
In a Tuesday report, analyst Luis Hilado says SingTel and StarHub are “not yet being very aggressive in their retention efforts” given that their recent higher data allocation and unlimited data plans carry higher average revenue per user (ARPU) commitments.
The telcos have been rated “hold” and “sell” at target prices of $3.83 and $2.17 respectively.
“In our view, given that early adopter demand may constrict available supply in the near term. M1 has yet to release iPhone X pricing plans, but its SIM only data plans are currently the most aggressive among the incumbents,” notes Hilado.
The analyst rates M1 at “sell” with a $1.59 price target given an 11% downside to its DFC-based target price.
With the impending launches of fourth mobile entrant TPG Telecom’s full mobility service as well as MyRepublic’s mobile virtual network operator (MVNO), Hilado believes pressure to re-contract subscribers will increase along with subsidies.
“What we cannot see from published rates are the offers that will ultimately come to corporate individual schemes (CIS) where the deals are sweetened, but are still subject to the maximum two-year retail contract limit,” he adds.
Maybank’s forecast assumes that hefty subsidies will become more apparent in 4Q this year, as holiday spend usually coincides with contract renewals.
“If iPhone demand is such that a supply bottleneck keeps subsidies per unit at bay, this would be an upside risk to our near-term forecasts. However, the medium-term prospects of accelerating the re-contracting process going into FY18 remain, in our view,” says Hilado.
As at 10:02am, shares in Singtel, M1 and StarHub are trading at $3.70, $1.77 and $2.59 or roughly 16.6, 22.7 and 24.5 times FY18 earnings respectively.
