Broker's take: Singapore mobile market still tough, but 5G plans should lift telco share prices

SINGAPORE regulators' expected award of 5G operating licences this year should be a market mover for telecom counters in the first three months, a stock watcher opined on Friday.

DBS analyst Sachin Mittal wrote in a sector report on Friday that share prices "are likely to perform well" in the first quarter amid expectations that Singtel may bid singly for one of the two nationwide licences, while smaller telcos StarHub and M1 team up to apply for the other.

With each 5G network estimated to need more than S$1 billion in investments over the next half-decade, he pointed to how chatter about plans for cost-saving network-sharing boosted the share prices of Chinese telcos China Unicom and China Telecom in August 2019.

Meanwhile, the Singapore mobile telecom market is still expected to feel the pinch in the consumer market as a switch to cheaper SIM-only plans pushes down postpaid average revenue per user (ARPU) and eats into telcos' earnings, Mr Mittal noted.

With SIM-only plans tipped to make up about one-quarter of the post-paid mobile market, he warned that postpaid ARPU could keep sliding for the next one to two years: "For example, Singtel offers 20GB for S$20 SIM-only plans, well below Singtel's post-paid ARPU of S$38."

But Mr Mittal, who upgraded both Singtel and StarHub to "buy" in November, argued that the crowded mobile market could still see the exit of newer entrants such as Australian network operator TPG Telecom, as well as some smaller network-leasing virtual operators.

Market leader Singtel, on the other hand, "is likely to benefit from (a) rise in associates' market value and reduction in holding company discount", said Mr Mittal, citing the house's fair-value estimates for key Singtel associates Bharti Airtel and Advanced Info Service in Thailand. 

He projected a 5 per cent yield for Singtel, as well as compound earnings growth of 8 per cent between FY2020 and FY2022, as the loss-hit Bharti Airtel is expected to finally turn around in FY2021 and support Singtel's bottom line, amid recent news of tariff hikes in India.

Separately, "while StarHub's operating metrics remain weak, the share price may benefit from significant capex reductions over FY2019/2020", said Mr Mittal, pointing to both the 6 per cent dividend yield and a potential share price catalyst in the mainboard-listed telco's 5G bid.

Singtel went into the midday break on Friday down by 1.5 per cent to S$3.35, while StarHub was trading higher by 1.4 per cent at S$1.44.