SINGAPORE (Nov 29): Although the year is drawing to an end, TPG has yet to announce its commercial launch this year. This is despite TPG saying in September that it was on track to meet its outdoor-coverage milestones set by IMDA.
In the short term, this delay might be good for the local telcos, as it gives them more time to prepare for the competition and re-contract subscribers to new 24-month terms and protect cashflows for a longer period.
However, Maybank Kim Eng, which has a “neutral” rating on Singapore telcos, believes that this is not a long-term cure.
In a Tuesday report, analyst Luis Hilado says. “In light of the wireless uncertainties, we continue to prefer the fibre backbone monopoly business provided by NetLink NBN Trust.”
The research house has a “buy” call on NetLink NBN Trust, with a target price of 93 cents.
So far, the launch of several MNVOs and rising popularity of SIM-only plans with no handset subsidies or contracts are the preparations made by the incumbents against TPG.
Earlier in Dec 2016, TPG disclosed a “seemingly benign” target of a 5-6% market share. But with potential niches being addressed even before its launch, TPG may risk being forced into a corner where only irrational price competition is its only option.
Amid uncertain rival reactions, the incumbents have embarked on cost-restructuring exercises. They have also looked into retooling their business practices, which include enterprise digitalisation and a revamp of the revenue model for pay TV and bundling.
Maybank Kim Eng has a “buy” call on StarHub, with a target price of $2.21, as the group has “a relatively aggressive stance”. To recap, StarHub will be cutting headcount by 300 or 12% of its 2,500 work force, as well as undergo a cost-restructuring move to save $210 million over 2019-2021.
Meanwhile, Singtel has a “hold” call, with a target price of $3.39, as it is moving in a direction that the analyst deems favourably. Singtel has plans in the digital space to offset the pressure on the traditional carriage business. It intends to list its digital business in the next three years.
On the other hand, the research house has a “sell” recommendation on M1, as potential post-general offer restructuring has not been factored, which the market may have already priced in.
Hilado forecasts a gradual 2% wireless-revenue erosion for the incumbents over FY18-20. He also assumes that TPG will take its 5% revenue market share.
Sensitivity analysis shows that every 1% change in wireless revenue could affect core profits and target prices by 1-3%.
“Against this backdrop, we believe that NetLink’s natural fibre monopoly coupled with its estimated healthy dividend yields of 6% should provide the best shelter,” says Hilado.
As at 12 noon, units in NetLink NBN Trust are trading at 78 cents, while shares in StarHub, Singtel and M1 are trading at $1.91, $3.09 and $2.10, respectively.
