Relatively decent start to 2015, with both M1 and Singtel posting earnings that were within forecast; StarHub missed due to margin erosion. Still, outlook for the three remains fairly upbeat, although we foresee some risks in the medium to long term. The key among them includes rising interest rates and the possibility of a 4th telco in Singapore. As such, we are maintain our NEUTRAL rating on the sector; but we do see potential value emerging at lower levels and advocate a bottoming picking approach. Singtel remains our top pick; M1 is also looking interesting around current levels as its yield has increased to 5.8% after the recent sharp pullback.
Mostly decent start to 2015
For the first quarter of CY15, revenues for the three telcos were somewhat higher than expected, driven by still strong demand for the new Apple iPhone 6 and 6+, but only M1 and Singtel managed to post earnings that were within expectations, as StarHub reported a worse-than-expected showing.
Mobile market still stable…
Still, we note that the mobile market remains largely stable, with post-paid subscribers inching up another 0.7% in the quarter. However, post-paid ARPUs for all three slipped QoQ, which the telcos attributed mainly to seasonality; but we note that 1Q ARPUs were also lower as compared to those in the Sep quarter. In addition, even though more subscribers are now on the tiered pricing plan, the number of them exceeding their data bundles continues to remain low (mostly in the low 20%).
but can it accommodate a fourth player?
And with the road to monetizing the increase in data usage likely still a pretty long and arduous one, the introduction of a fourth player into Singapore’s well penetrated mobile market is probably not going to help the situation – especially after a potential new entrant like MyRepublic announced its intention to offer unlimited data packages as its main selling point. OMGTel! has also thrown its hat into the fray, although it did not reveal details about its plans.
Maintain NEUTRAL – bottom picking preferred
Although we are maintaining our NEUTRAL rating on the sector for now, we note that there are several potential downside risks. The key among them is rising interest rates, which could erode the attractive of the telcos’ dividend yields. Another risk is the inability to raise ARPU or even suffer ARPU deterioration with the introduction of a new telco in the medium term. And as before, the intense competition in the broadband space is likely to remain and weigh on margins. Still, we believe value could be found in this segment; and would advocate bargain hunting on any significant pullbacks. Singtel remains our top pick; M1 is also looking interesting around current levels as its yield has increased to 5.8% after the recent sharp pullback.
For the first quarter of CY15, revenues for the three telcos were somewhat higher than expected, driven by still strong demand for the new Apple iPhone 6 and 6+, but only M1 and Singtel managed to post earnings that were within expectations, as StarHub reported a worse-than-expected showing.
Mobile market still stable…
Still, we note that the mobile market remains largely stable, with post-paid subscribers inching up another 0.7% in the quarter. However, post-paid ARPUs for all three slipped QoQ, which the telcos attributed mainly to seasonality; but we note that 1Q ARPUs were also lower as compared to those in the Sep quarter. In addition, even though more subscribers are now on the tiered pricing plan, the number of them exceeding their data bundles continues to remain low (mostly in the low 20%).
but can it accommodate a fourth player?
And with the road to monetizing the increase in data usage likely still a pretty long and arduous one, the introduction of a fourth player into Singapore’s well penetrated mobile market is probably not going to help the situation – especially after a potential new entrant like MyRepublic announced its intention to offer unlimited data packages as its main selling point. OMGTel! has also thrown its hat into the fray, although it did not reveal details about its plans.
Maintain NEUTRAL – bottom picking preferred
Although we are maintaining our NEUTRAL rating on the sector for now, we note that there are several potential downside risks. The key among them is rising interest rates, which could erode the attractive of the telcos’ dividend yields. Another risk is the inability to raise ARPU or even suffer ARPU deterioration with the introduction of a new telco in the medium term. And as before, the intense competition in the broadband space is likely to remain and weigh on margins. Still, we believe value could be found in this segment; and would advocate bargain hunting on any significant pullbacks. Singtel remains our top pick; M1 is also looking interesting around current levels as its yield has increased to 5.8% after the recent sharp pullback.
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