Stocks of telcos are seen by analysts as resilient counters that can keep their dividend guidance even as the market suffers from selldowns. But with the Covid-19 outbreak, Singtel and StarHub also want to be known for helping its subscribers cope with the losses and the lockdowns
SINGAPORE (Apr 3): As the Covid-19 pandemic rages on, just about every sector in the Singapore economy has been hurt in varying degrees. Hotels, airlines, have suffered so-called “first-order” impact.
Meanwhile, telcos, with their critical function of providing communications and Internet access, are seen as somewhat more resilient. In fact, they may even benefit from stronger demand.
According to DBS analysts Yeo Kee Yan and Janice Chua, stocks that can ward off short-term supply chain disruption, a sharp drop in consumer discretionary spending and the impact of travel restrictions include those in telecommunications such as StarHub and Netlink NBN Trust, as well as consumer staples such as Dairy Farm International and Sheng Siong Group.
StarHub CEO Peter Kaliaropoulos prefers to maintain a guarded tone though. “I don’t think any business is not affected right now. Starting from the airport counters where we sell tens of thousands of SIM cards every month to people arriving in Singapore — those sales have evaporated,” he tells The Edge Singapore.
“And if you look at roaming traffic, because people don’t travel as much, there is a lot of reduction in international traffic. But believe it or not, there are still some who travel for business.
So the reduction of outbound and inbound for this business market is not as low as the reduction of similar traffic for consumers,” he adds.
On Feb 12, StarHub said it will offer SME customers free subscription to a “softphone” app called SmartUC Mobile which enables them to make or receive landline calls even if they are away from their offices. This is because many companies have implemented work from home arrangements to curb the spread of Covid-19.
Even as it deals with the outbreak, StarHub is stepping up its transformation and growth plans. Last month, the company announced plans to spend more than $80 million to acquire a controlling stake in a Malaysian IT company Strateq, which will beef up its enterprise business. (See Page 9)
Meanwhile, Arthur Lang, CEO of Singtel International, expects a long and slow road to recovery, he tells The Edge Singapore on March 31 (See Page 10). Beyond the immediate financial hit taken by airlines and hotels, Lang is wary of the so-called second- and third-order impacts which have the potential to wreak more damage across regional economies. These could lead to massive job losses, the collapse of economies and even the breakdown of social order, he warns.
But if the recent calls of analysts are anything to go by, investors should stay positive on telco stocks. According to CGS-CIMB Research’s Foong Choong Chen, Singtel is his top pick for the sector. The company is seen to be coming off a five-year bear cycle as the earnings contributions from its various regional associates improve. This helped Singtel grow its core earnings per share for FY2021 by 13.3%.
The telco, Foong says, should be able to keep its full year dividend of 17.5 cents per share, which translates into a very attractive yield of 6.7%, based on its April 2 closing price of $2.62. Foong has an “overweight” call and $3.40 price target on the stock.
StarHub, on the other hand, has been grappling with a different set of challenges. Its pay TV business has deteriorated over the past few years as subscribers switch to other ways of consuming video content like Netflix. However, the company has been aggressively cutting operating costs. It has also taken a big step to team up with rival M1 to put in a joint bid for a 5G licence. By doing so, StarHub will be able to enjoy significant savings and thereby maintain its dividend payout of 9 cents per share which was guided when it reported its FY2019 earnings. Foong expects StarHub’s core earnings per share to improve 18.5% this current FY2020. He has a price target of $1.80 on the stock, which closed at $1.37 on April 2, giving it a market cap of $2.37 billion.
Since StarHub announced its 9 cents FY2020 guidance on Feb 20, the market has headed South drastically. “As we have given our guidance, we are reviewing what is happening in the marketplace,” says Kaliaropoulos on March 30, when asked if the guidance remains. “We are grateful for the economic policies from the government that provides some level of support for companies to keep employment,” he adds.
Nevertheless, he believes that with the Covid-19 pandemic hurting economies and markets, there are more urgent tasks on hand. “To be honest, right now, it is about the health and safety of our people first, and not growing profits. It is about ensuring that our employees are all safe, and making sure that our customers that interact with them are safe as well,” adds Kaliaropoulos.
Meanwhile, Singtel’s Lang sees data traffic surging amid the Covid-19 outbreak as well as an increase in broadband sign-ups in certain markets. But while this is positive for Singtel’s business, Lang says now is not the right time to feel smug.
The subscribers of Singtel’s regional associates are predominantly on pre-paid plans. In practical terms, many of them visit their local shops to pay and top up their credits. “But because of the various lockdowns, a lot of them are using digital channels and our payment wallets, so actually we’re seeing a big positive there,” says Lang.
Still, many of these users are in the so-called informal employment sector, with daily-rated workers in its ranks. And with the lockdowns, many have no income. What some of Singtel’s associates have done is to offer “massive amounts” of free data during these trying times.
For instance, Telkomsel — Singtel’s associate in Indonesia — has partnered with online education companies to help students attend virtual classes using their mobile networks, given many do not have broadband connections at home. “I actually see telcos have a very meaningful role to play. We are really at the nexus of everyday for the customer,” says Lang.
In Singapore, many of Singtel’s subscribers are foreign domestic workers whose wage are remitted back home through its mobile wallets.
And thanks to big discounts on remittance fees, Singtel, which tracks remittance volume, saw all-time-high volume last weekend, he adds.
Although the telco might have earned less, Lang trusts shareholders understand this is the right thing to do now. “At the end of the day, it is really a question about balancing, right?
We do need to take care of our shareholders of course, but we also have very important stakeholders and we play a very important role in society,” says Lang.
