Paul Chew, head of research at Phillip Securities, agrees that Singtel and StarHub’s valuations are starting to look attractive. However, he is keeping a neutral view on both stocks. “Earnings will be sluggish near-term from roaming drag and overall economic weakness,” he says, referring to the hit from foregone roaming revenue that is typically around 20% of the telcos’ mobile revenue. Besides valuations, Chew sees potential bright spots, such as the cybersecurity offerings the telcos have built up, which he believes is “undervalued”.
Why are telcos finding it hard to generate a profit from internet-hungry consumers? In its latest 1HFY2021 results ended September, Singapore Telecommunications (Singtel) recorded a 19% drop in its revenue from the Singapore consumer segment to $871 million from $1.1 billion a year ago, bringing Ebitda to just $326 million, 14% lower than a year ago. Singtel attributed the drop to the Covid-19 pandemic, which resulted in declines in roaming, prepaid customers (foreign workers & tourists) and equipment sales. This lowered average revenue per user (ARPU) for Singapore mobile by 25% y-o-y to $29 while prepaid ARPU fell 22% y-o-y to $13.
StarHub’s 3QFY2020 results ended September saw a drop in revenue for the consumer segment due to same reasons — lower roaming and prepaid revenue due to the travel bans. In an update, StarHub says overall revenue fell 14.5% y-o-y to $489.7 million, mainly due to lower contributions from mobile, pay TV and equipment sales, partially offset by higher revenues from broadband and enterprise business. This brought 3QFY2020 earnings to $44.5 million, 23.3% lower than a year ago while 9MFY2020 earnings fell 19.6% y-o-y to $121.9 million, 19.6%. Meanwhile, mobile service revenue in 3QFY2020 fell 29.4% due to lower postpaid and prepaid revenues.
