Singtel is gaining traction in deploying 5G and remains a safe haven with attractive potential, says Maybank Securities Research analyst Kelvin Tan.
“Amid tough and volatile times, we contend that Singtel remains a safe haven with attractive upside potential and a 5% dividend yield,” says Tan.
In a March 16 note, Tan is maintaining “buy” on Singtel with an unchanged target price of $2.98.
Tan expects an increasingly competitive landscape as incumbents focus on monetising 5G services and increasing capex for 5G implementation. “Despite setbacks, sales of Singtel’s 5G-equipped phones are as strong as pre-pandemic levels. Regionally, Telkomsel and Airtel have launched commercial 5G services and this should further spark the development of new 5G applications for consumers and enterprises in emerging markets.”
With more than 1,000 5G standalone (SA) sites across Singapore, Singtel is poised to meet IMDA’s target of 50% population coverage by end-2022, says Tan.
Increasing 5G adoption via bundled packages has led to an uplift in average revenue per user (ARPU) 0.3% y-o-y and helped address dilution from 4G SIM-only plans. In Singapore’s recent budget $200 million was earmarked to build digital capabilities for business in coming years.
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“We believe Singtel is well-placed to capitalise on this through its lucrative enterprise business by offering assistance in the development of solutions for a wide range of uses. This initiative, however, will take time to bear fruit,” says Tan.
Singtel faces strong competition in Australia. Telstra’s recent partnership with TPG Telecom to increase 5G sites in Australia could potentially reduce the cost of network ownership by up to 30%.
Telstra is Australia's largest telecommunications company by market share.
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In fact, capex for Singtel’s 5G network has been increasing (+10% y-o-y) since it gained the 3.5GHz spectrum in mid-2020. “Moving forward, we expect a greater capex burden for Singtel thus reducing free cash flow visibility,” says Tan.
“We predict constant distribution per unit (DPU) at 40-50% of net profit from FY2022 to FY2025. Optus has allowed Telstra to regain dominance in the Australia Telco space and would need a game-changer in this competitive market,” he adds.
Research by Cisco predicts Singtel’s annual 5G revenue could rise to $710 million (12% of current annual enterprise revenue) by 2025. “We anticipate key strategic plans for Singtel will include accelerating Internet of Things connection via strategic partnerships, leveraging its infrastructure assets to unlock value and drive secular growth by allowing enterprises and startups to incorporate distinctive use cases in their Multi-access Edge Computing (MEC) structures,” writes Tan.
As at 2.15pm, shares in Singtel are trading flat at $2.55.
