Thursday 28 Mar 2024
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SINGAPORE (Sept 2): Analysts have begun to price in the real possibility of a fourth telco entering the Singapore market after MyRepublic, AirYotta and TPG Telecom submitted their applications to the Infocomm Development Authority (IDA) on Thursday to bid for the fourth mobile operator licence in the New Entrant Spectrum Auction (NESA) in October.

Over the past three months, speculation that the potential bidders might fail to raise the required funding have pushed the share prices of Singtel, StarHub and M1 up by 4% to 11%. But news of the applications is already negatively impacting stocks of the three telcos with shares of SingTel, M1 and StarHub trending lower although submission of the Expression of Interest documents is no guarantee of the parties’ eligibility to bid.

For one, research house CIMB is maintaining its “neutral” rating on the telco sector, and has a “buy” for SingTel and “hold” for M1 and StarHub. In a Thursday note, analyst Foong Choon Chen notes that M1 and StarHub stand to lose more given M1’s business which is local and mobile-focused, and StarHub’s 71% earnings contribution from mobile. If a fourth telco materialises, Foong will lower his target prices for both M1 and StarHub from S$2.80 to S$2.40; and from S$3.70 to S$3.20 respectively.

“SingTel will be the least impacted as we estimate its Singapore mobile business will only account for 11% of group FY17 EBITDA,” says Foong adding that the S$4.50 target price for SingTel, already takes into account the entry of a fourth telco.

UOB Kay Hian is also maintaining its “underweight” rating on the sector, and has a “buy” on Singtel but “sell” for M1 and StarHub.

Analyst Jonathan Koh believes competition in the telco sector is not limited to the entry of the newcomers but could also heat up in the general spectrum auction (stage B) — for incumbents only — in October. He noted that StarHub in May raised S$300 million through its medium-term note programme. This “could signify a change to the previous cosy oligopoly”.

The brokerage is pricing in its worst-case scenario with the entry of a fourth telco disrupting the status quo and lowered its target prices for Singtel, StarHub and M1 to S$4.61, S$2.62 and S$2.00 respectively.

Still, some market watchers are not convinced that the fourth telco would come to fruition. Daiwa Capital Market’s analyst Ramakrishna Maruvada estimates that the odds of a potential new entrant has risen to 50%, but remains sceptical as “their likely financing plans, powered by relatively small balance sheets, may not find muster with the regulator”.

“While we expect stock prices to remain volatile in the near term, we continue to believe that entry of new players in the Singapore market is not a certainty, chiefly due to financing issues, unlike some of the views in the market,” says Maruvada.

Maruvada instead believes the real threat to SingTel is in India, where Reliance Jio has unveiled aggressive price plans that include free voice calls and cheap data tariffs of INR50 per GB (S$1.02 per Gb), compared with the industry rate of INR250 per GB, and could impact Bharti Airtel’s outlook.

Daiwa is therefore maintaining its “neutral” view of the sector, as well as its “buy” rating on M1 at S$2.66, “hold” on SingTel at S$3.95 and “underperform” on StarHub at S$3.63.

Shares of Singtel, StarHub and M1 are trading between 2.5% and 6% lower at S$3.87, S$3.47 and S$2.50 respectively.

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