SingTel

OCBC Investment Research, July 4

SINGTEL, despite being widely touted as a front-runner, was not among the two winners of the 15-year telecommunications licences in Myanmar.

Instead, Norway's Telenor and Qatar's Ooredoo (formerly known as Qatar Telecoms) won these much-coveted licences to roll out telecommunications infrastructure across the country, which probably has one of the lowest mobile penetration rates in the world - at just 10 per cent.

While SingTel did initially suffer a minor pullback in its share price after the announcement of the results, we note that it was probably due to the sharp run-up in share price just prior to the news.

But overall, not winning it may not be a bad thing; given the massive scale of the infrastructure roll-out, the capital investment for which could run into the tens of billions of dollars, some market watchers believe. Ooredoo will reportedly invest US$15 billion over the 15-year period.

Furthermore, we note that the regulatory environment is still very uncertain in Myanmar, and that could probably put a cap on subscription rates, which could result in operating losses for the first few years.

However, we believe that there are still opportunities for SingTel to get involved at a later stage, when the industry is more settled and the regulatory environment is more established. Market watchers estimate that the mobile market in Myanmar could be worth some US$2.6 billion to US$3.0 billion in 2016.

Separately, we see the recent volatility in the regional currencies as the biggest risk factor, as SingTel is especially exposed to Australian/ Sing dollar movements because of Optus.

However, we do note that some value is starting to emerge around current levels, as SingTel has fallen back to below our sum-of-the-parts fair value of S$3.83. Hence we maintain our "hold" rating and would be buyers closer to S$3.50.

HOLD