StarHub can benefit from consolidation, Singtel to a more ‘limited extent’, analysts say
They also see wider advantages for the industry as competition is generally expected to ease
[SINGAPORE] Recent surprise acquisitions in Singapore’s telecommunications space may have raised eyebrows, but analysts see the moves by StarHub, M1 and Simba to largely benefit the industry, with competition expected to ease.
Earlier on Tuesday (Aug 12), StarHub’s wholly owned subsidiary – StarHub Online – announced that it had acquired its remaining 49.9 per cent stake in MyRepublic Broadband with related operational assets for S$105.2 million.
Prior to this move, there was speculation for years that the telco would be acquiring M1. That no longer stands, with Keppel’s proposed, all-cash deal announced on Monday to divest M1’s telco business to Simba Telecom at an enterprise value of S$1.43 billion.
Analysts from RHB Group Research on Wednesday recognised how this decision by StarHub consolidates its leadership in the fibre broadband space with full ownership and access to MyRepublic’s brand equity.
At present, the local telco player ranks first for broadband revenue share, and has the second-largest number of fibre broadband subscriptions after incumbent Singtel.
The analysts explained that the fibre broadband business is an integral part of StarHub’s multi-brand, multi-segment strategy, as it supports the group’s quad play offerings.
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“It provides a high degree of customer stickiness via product and service bundles with potential for household average revenue per user (ARPU) accretion,” they noted in their report.
The telco’s fibre broadband ARPU in particular has also seen a progressive uplift in recent quarters, supported by the upselling of higher-speed plans of above 5 gigabits per second. This has contributed to a 4.9 per cent year-on-year increase in broadband revenue in the first quarter of this year, despite the slight weakness in fibre broadband subscriptions.
If the consolidation of the fibre broadband market is viewed positively, there is a case where prices could be driven up, under circumstances where competition for bundled services heats up with the Simba-M1 deal moving forward, wrote the analysts.
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On the whole, however, StarHub’s latest move should in turn drive greater value-creation for customers, said the RHB Group Research analysts, as they kept a “neutral” rating on the counter in their report. They also had no changes to their earnings forecast, pending the release of the telco’s results on Thursday for the first half of this year.
Hussaini Saifee, equity research analyst at Maybank Securities, said that StarHub will be a “beneficiary of network synergies”, as it operates a singular 5G access network along with M1.
The proposed sale of M1’s telco business to Simba Telecom carries forward the assumption that, moving forward, even Simba’s spectrum will be deployed over the singular network, which will help StarHub.
“StarHub won’t be footing the bill of industry consolidation and complex network integration and (so), we see better certainty of its dividends,” he wrote in his Monday report.
Singtel to gain from competitor moves, but to limited extent: Maybank
As most analysts continue to see competition as subsiding with greater consolidation in the local telco market, Saifee believes that Singtel will also benefit from recent developments.
“That said, less than 10 per cent of Singtel’s sum-of-the-parts valuation comes from Singapore consumers, which means such positive impact will be relatively limited,” the analyst caveated. Saifee kept a “buy” rating on Singtel, in light of how all of the company’s operating units and associates are trending in a positive direction.
Citi analysts estimated that Singtel will generate around 9 per cent of group revenue from local mobile services in their Monday report, while StarHub will generate 29 per cent of revenue.
While the analysts had originally foreseen “a different marriage outcome”, in relation to the recent proposed acquisition of M1’s telco business by Simba, they generally believe that consolidation should be positive for the overall industry nonetheless. This is due to the potential for market repair under a three-player market, where all operators will have scale.
“The need to drive scale has driven intense price competition in the market, with this as the only way to drive profit,” they wrote on Monday. “(Thus), we see this development as an avenue to potentially de-escalate competition in Singapore, and should be positive for StarHub and Singtel.”
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