Sector Overview

The Telecommunications Sector under our coverage consists of SingTel, StarHub & M1. StarHub (STH) and M1 are pure plays to the Singapore market, while SingTel (ST) has exposure to the Asia-Pacific region through its regional mobile associates.

• Service revenue remains largely stable q-q
• Telcos remain attractive as long term investments due to high dividend yields and stable earnings
• We think the current dip in share price presents good buying opportunity
• Accumulate on SingTel and M1, Reduce on StarHub. We prefer SingTel over M1 and StarHub

Mobile

• Q-Q post-paid net adds across three Telcos, with SingTel marginally gaining more market share
• Positive on tiered-plan customers continuing to exceeding data allowances, data monetizing expected to gain further traction moving forward

Pay TV

• SingTel continues to gain market share, StarHub post 5th consecutive quarter of negative net adds
• StarHub to benefit if cross-carriage ruling on BPL upheld. We present a detailed analysis below.

Broadband

• Fibre broadband continues to grow rapidly
• Residential take-up rates affected by low “Home-reach”

Others

• SingTel guides stable FY14 Group revenue, Starhub lowers revenue growth guidance to low single digit
• Capital expenditure to remain high
• SingTel to spend S$2B on Group Digital over next 3 yrs

Recommendation

We are cautiously optimistic on the sector, as they remain attractive due to their high dividend yield and stable earnings. We prefer SingTel over M1 and StarHub due to SingTel’s overseas exposure leading to higher growth potential. We continue to expect Bharti’s declining performance to turn around, while AIS and Telkomsel continues to post strong results. M1 remains attractive with high dividend yields, but near term capex requirements may reduce near term potential for dividend growth. We note the sharp decline in StarHub’s share price since the end of the results season. While noting concerns over potentially rising interest rates, the high dividend yields and strong fundamentals continue to make the Singapore Telcos attractive investments. We think the current dip in share price for the Telcos present good buying opportunity.

• M1 Ltd - Accumulate Target Price: $3.55
• Starhub - Reduce Target Price: $4.40
• SingTel - Accumulate Target Price: $4.07

Source: PhillipCapital Research - 5 Jun 2013