Thursday 28 Mar 2024
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SINGAPORE (Sept 5): Analysts from Maybank Kim Eng and Citi Research agree that the risk of a new market telco entrant has significantly spiked – although in Nomura’s view, it is still too early to take a specific stance on the spectrum’s results.

Citi has raised its probability of a new entrant from 25% to 85% and expects a fourth player would be able to take 7.5% of the sector’s market share by FY21.

Maybank has downgraded its previously “neutral” view on the telco sector to an outright “negative” one, noting that the surprise appearance of “three — not two, or even zero potential bidders as was the possibility earlier”.

The way Nomura’s research team sees it, there is “no clarity on conditions of funding or term sheet details” for the potential new entrants at this stage, therefore making it difficult to give a definitive view.

“Our view has been that the economics don’t necessarily stack up in favour of new entrants. There is no mandatory roaming and the regulator is stringent on quality of service (QoS) requirements,” explains Nomura in a report last Thursday. “The incumbent telcos have made price revisions and there may now be less room to correct pricing inefficiencies,” it adds.

To recap, there are now three potential bidders in the race to become Singapore’s fourth telco operator through the Infocomm Development Authority of Singapore’s (IDA) upcoming New Entrant Spectrum Auction.

IDA last week received three Expressions of Interest (EOI) from fibre broadband operator MyRepublic, Australian telco TPG telecom, and newly-established company AirYotta, whose management is reportedly fronted by two senior executives of dropped-out spectrum bidders OMGTel and Consistel.

Both Maybank and Citi concede that victory is highly likely for TPG, considering its reputation for having a low-cost pricing model, mobile virtual network operator (MVNO) operations in its Australian home market, as well as its DM fixed-line experience.

“Should TPG enter, we believe that risk extends beyond just the mobile business, but also on the fixed lien space through the use/resale of the Next Generation Nationwide Broadband Network (NGNBN),” says Citi’s lead analyst Arthur Pineda.

Maybank analyst Gregory Yap has also identified MyRepublic a contender with a “better chance” as it is already competing in Singapore’s broadband market. He believes IDA should be more confident in both TPG and MyRepublic as compared to the newly set-up AirYotta.  

With the highest exposure to domestic mobile services compared to its peers, M1 has the most to lose to a new mobile entrant in terms of consumer market share. The telco has therefore been downgraded by Citi and Maybank, from “neutral” to “sell” with a lower target price of S$2.40, as well as from “hold” to “sell” with its target price reduced to S$2.04 respectively.

M1’s fellow smaller operator, StarHub, is also at similar risk. Citi’s Pineda suggests that even StarHub’s fixed broadband services, which contribute to 26% of the telco’s revenues, may not be safe as there are opportunities for TPG extending into the broadband/fixed voice space through the NGNBM wholesale. However, Yap and Pineda both think the extent of market share loss will not hit StarHub as it will M1 due to its subscriber incentives and lower exposure.

As Singtel’s mobile business accounts for only 12% of its revenue, Maybank’s Yap says he sees limited impact from the entrant of new consumer mobile rivals. Likewise, Citi’s Pineda agrees that the telco appears best placed among its rivals, although it won’t escape unscathed. He is projecting 1%-3% potential dilution should a fourth player appear. While Citi has kept Singtel at “buy” at a lower target price of S$4.66, Maybank maintains its “hold” call on the stock with a lower target price of S$3.70.

Nomura, too, has highlighted Singtel as its choice stock for the sector, noting the telco as a dominant player in its segment as well as its strong cash position and balance sheet. As such, its research analysts believe responding to mobile competition or acquiring additional spectrum, especially in the 900MHJz range, in the upcoming auctions “shouldn’t be difficult”.

On Monday, M1, StarHub and Singtel closed at S$2.53, S$3.40 and S$3.95 respectively.

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