Telecommunications sector

CIMB RESEARCH, June 5

WE upgrade Singapore's telco sector to "neutral" from "underweight" following the Q1 2013 results season on the surging adoption of tiered mobile plans; and after upgrading SingTel to "neutral" from "underperform" on lower competition issues in Australia.

Nevertheless, competition in fixed broadband and pay TV remains a concern, especially for StarHub. We are also neutral on the sector as valuations are still not compelling despite the recent de-rating. M1 ("outperform") is our top pick as it should be the biggest beneficiary of the adoption of tiered data plans and is also developing a new revenue stream in fixed broadband.

M1 is our top Singapore telco pick. It is benefiting from the rapid take-up of tiered data plans for which it has been charging an additional $3/month since last September 2012. Discounted cash flow (DCF)-based target price of $3.60 (weighted average cost of capital, or WACC 8.0 per cent).

We are now less pessimistic on SingTel given its higher payout policy and easing of competition in Australia. Maintain "neutral" with a sum of parts-based target of $3.86.

StarHub lacks immediate re-rating catalysts until year-end when we think it could raise DPS. Maintain "neutral" with a DCF-based target price of $4.52 (WACC 7.8 per cent).

NEUTRAL