Monday, 27 March 2017

Stock Market Today:Singapore telco sector's likely return to 3-player oligopoly viewed as favourable

UOB Kay Hian is reiterating its "buy" call on Singtel with a target price of $4.53, while keeping its overweight view on telecommunications sector after assessing the impact of increased competition with the entry of the fourth mobile operator, TPG Telecom.

In a Monday report, analyst Jonathan Koh says although TPG will bring about an increase in competitive intensity within the mobile space, this risk is offset by potential consolidation of Singapore's mobile industry within the next 3-5 years.

Although the industry is unlikely to consolidate in the near-term, Koh nevertheless sees prospects of a return to a three-player oligopoly as favourable.

The research house has, however, kept its "hold" recommendation on StarHub with a target price of $2.50, noting that the telco's share price has bottomed.

Competition will intensify with TPG Telecom entering the mobile market as the 4th mobile operator in 2018. The dire outlook has forced StarHub into exploring network sharing as a means to reduce capex and opex, says Koh.

Conversely, the analyst believes the overall impact on Singtel is likely to be marginal as its mobile business in Singapore accounted for only 7% of revenue, considering its proportionate share of revenue from tis regional mobile associates.

He also notes how shareholders of Singtel will be able to receive up to 17.5 cents per share in the form of a special dividend resulting from the initial public offering (IPO) proceeds of NetLink Trust, which it is to reduce its stake in to below 25% by April 18.

Highlighting TPG's recent set of good 1H17 results with all business units registering growth, the analyst observes that the new mobile entrant's recruitment and network planning activities are "progressing well", having already set up its local office as well as hired network engineers and project managers to oversee the rollout of its mobile network in Singapore.

As at 12.16pm, shares of Singtel, StarHub and M1 are trading at $3.89, $2.88 and $2.16 respectively.

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