Tuesday, 18 March 2014

Singapore Telcos

Kim Eng on 18 Mar 2014

  • Our joint Singapore/Malaysia telco marketing trip last week saw participation from 13 clients. 
  • Key message to stay BUY on M1/StarHub did not get any pushback, while more cautious view on SingTel resonated with clients.
  • We believe our comprehensive discussion on longer-term prognosis for the telcos was appreciated by clients.
What’s New
We met 13 clients last week in Kuala Lumpur on a joint Malaysia/ Singapore telcos marketing trip. Our key message was to stay on the BUY side for M1 and StarHub as the duo remain the leading candidates to pay higher dividends among the Singapore telcos and stand to benefit the most from data monetisation, in particular M1. We also talked at length about the telcos’ long-term strategies to combat declining voice revenue and the threat from Over-The-Top (OTT) apps, especially as WhatsApp plans to offer free IP voice calls in 2H14 following its recent acquisition by Facebook.

What’s Our View
We believe clients were onboard with our call to continue to buy M1 and StarHub. We argued that M1 has the capacity to pay more special dividends as there is room for earnings surprises, given (1) the acceleration in adoption of tiered data subscriptions, and (2) its high percentage of heavy data users that are likely to upgrade their plans on expiry of the old contracts. In the case of StarHub, we argued that investors should continue to like it as it too has the capacity to pay more dividends given its healthy balance sheet.
Our more cautious view on SingTel resonated with clients. We contended that they would be better off buying directly into SingTel’s listed associates, such as Bharti, for a recovery in their home markets than buying indirectly through SingTel given the risk of potential corporate actions diminishing the rewards, eg, the talk about the sale of Shin Corp stake by Temasek Holdings to SingTel.
We also believe clients appreciated our comprehensive discussion of the longer-term prognosis for the telcos, given declining voice/SMS revenue amid the threat from OTT. Most agreed that new services such as HD voice and joyn (Rich Communication Services) are just pieces of a larger puzzle that needs time to be put together. Longer term, the telcos still need to (1) take advantage of the changes in technology, such as Voice over LTE, to provide an alternative to the OTT services, and (2) reinvent themselves as solution or content providers instead of being just connectivity pipe providers.

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