Telco roaming revenues to recover, but stiff competition could still hurt earnings: analysts

TELECOMMUNICATIONS companies reporting their earnings this week are likely to show a positive bump in roaming revenues, analysts said. But the outlook for the sector has not improved all that much, amid stiff competition.

Singtel is due to report its financial results, for H1 FY2023 ended September, on Thursday (Nov 10); and StarHub will report its numbers for Q3 FY2022 on Wednesday.

Analysts are relatively optimistic about their prospects.

Maybank analyst Kelvin Tan sees the telecoms sector as a proxy for the regional economic recovery, and expects mobile service revenue to be stable.

Fitch Ratings analyst Nitin Soni, meanwhile, said telcos could see increases in roaming and other service revenue as they serve more tourists. Most countries lifted restrictions on tourism early this year.

But DBS analyst Sachin Mittal was more circumspect about the potential benefits to telcos from a rebound in travel.

“Roaming is coming back, but I think it’s still inching up rather slowly,” he said.

While corporate subscribers may still use roaming, Mittal noted that tourists have leaned towards getting local SIM cards as these are cheaper in some markets.

Soni of Fitch also noted that roaming fees are coming under pressure from competition.

Singapore’s newest mobile network operator Simba, formerly known as TPG Telecom, charges S$25 for 30 days and 10 GB of roaming data. This plan is available in 57 countries – including popular destinations such as Australia, Japan and Malaysia. All its mobile plans also come with at least 1 GB of free roaming data, valid in the same 57 countries.

Besides the impact of competition, Soni said investors should also pay attention to the capital expenditures (capex) of telcos as they expand their 5G networks.

Capex is likely to stay elevated in 2023 and 2024, he said, although the benefits of such investments remain unclear.

“There is little evidence of 5G leading to sustained and significant average revenue per user (ARPU) uplift across the world...

“ARPUs are likely to be driven primarily by competitive behaviour of the telcos rather than adoption of 5G,” he said.

As to which of Singapore’s two listed telcos is likely to outperform, both Maybank’s Tan and DBS’ Mittal prefer Singtel over StarHub.

Mittal sees potential for Singtel’s India associate Bharti Airtel to do better. The Indian market has seen a series of tariff hikes, while ARPUs are rising as more users migrate from 3G to 4G.

He nevertheless highlighted downside risks for Singtel in Australia, where its subsidiary Optus has faced a hack that compromised the personal data of 9.8 million customers.

“I think we will be expecting some rise in churn rates in the immediate aftermath of the event,” Mittal said, as some customers may feel the need to change providers. “The question is: Will it take one quarter or two quarters to come back to normal levels?”

Maybank’s Tan expects the impact from the data leak on Singtel’s cash flow to be minimal when compared with the group’s total operating cash flow of S$2.2 billion for the half-year ended Mar 31, 2022. He reckons the impact of the Optus data leak has already been priced into Singtel’s shares.

While CGS-CIMB analysts Foong Choong Chen and Sherman Lam noted that Bharti Airtel could see its contribution quadruple to S$190 million to S$200 million from S$49 million a year earlier, this could be partly offset by lower earnings at its Indonesian associate Telkomsel and Thai associate AIS. They expect Telkomsel’s revenue contribution to decline to about S$345 million, while AIS’ revenue contribution could decline to about S$110 million.

“Half-on-half, we believe associate profits rose 12 to 15 per cent, stemming from better performance at Bharti, (Philippine associate) Globe and Telkomsel (easing competition and seasonally stronger demand during Lebaran),” they said.

Both analysts reiterated “add” on Singtel with an unchanged target price of S$3.20.

Singtel’s shares have fallen by 4.9 per cent since its announcement about the Optus data leak on Sep 22. Over the same period, the benchmark Straits Times Index has fallen by 3.7 per cent, while shares of StarHub have fallen 11 per cent.

Singtel is expected to post a 29.3 per cent increase in earnings per share, to S$0.075, for H1 FY2023, according to a Bloomberg poll of three analysts. Revenue is expected to fall 2.7 per cent to S$7.4 billion.

Over at StarHub, net profit for Q3 is expected to fall 17.9 per cent to S$33 million and revenue is expected to rise 10 per cent to S$569 million.