Telecommunications sector

Phillip Securities Research, Dec 9

THE telecommunications sector under our coverage consists of SingTel ("Accumulate", target price $3.61), StarHub ("Accumulate", target price $4.52) and M1 ("Accumulate", target price $3.55). StarHub and M1 are pure plays to the Singapore market, while SingTel has exposure to the Asia-Pacific region through its regional mobile associates.

M1 replaces SingTel as our most preferred stock in the sector. We like M1 over SingTel and StarHub as M1 stands to gain the most from improving mobile dynamics in Singapore, and benefits from growth in its fibre broadband. Mobile accounts for a higher revenue proportion for M1 than for its peers. With its fibre broadband offering, M1 continues to grow its fixed services revenue.

Adverse foreign exchange movements continue to have a negative impact on SingTel's earnings.

However, its earnings remained stable y-o-y in the last quarter because of effective cost-management strategy.

We remain cautiously positive on the sector as the telco stocks continue to provide attractive dividend yields and stable earnings growth.

We see data monetising gaining good traction in Singapore and expect it to continue into FY2014. More subscribers have taken up 4G tiered plans and are increasingly exceeding their data allowances.

SingTel and M1 reported improvement in Ebitda margin on service revenue while Ebitda margin for StarHub remained stable in the last quarter.

Earnings growth was stable across the three telcos in the current FY. Despite expectations of the Fed tapering in the near term, we think the telcos continue to be attractive investments, providing earnings as well as dividend growth potential.