• Data growth to drive ARPUs
• Maintain NEUTRAL
• SingTel is our top pick

Still banking on data growth

With the Singapore market already close to saturation point, we believe that mobile revenue growth can only be driven by the ability of the telcos to effectively monetize the switch towards higher data usage; but this could remain a challenge as smartphone users are becoming more discerning when it comes to using data. Nevertheless, we should still see some ARPU uplifts as the telcos continue to migrate their existing subscribers to the tiered pricing plans with restrictive data bundles. However, we cannot rule out the possibility of a 4th telco emerging sometime in 2016.

Broadband price competition may start to ease

No doubt that the competition in the broadband sector is likely to remain intense, especially in the residential segment; but we are seeing signs that there is a visible shift away from using price to grab market share. As such, ARPUs should start to stabilize and even improve slightly from here as rivals start to offer higher speeds at the same price points to compete.

Pay TV market facing OTT challenge

With no major sporting content up for renewal, we do not expect to see any major changes in market share or ARPUs for both SingTel and StarHub. However, we do note that the market appears to be fairly saturated and believe that there is limited growth ahead. On the other hand, we think the OTT operators remain the largest threat to the incumbents, which could further restrict growth.

Yields are fairly resilient

While there are threats to the telco sector, we believe that the medium-term outlook remains fairly stable and their abilities to generate ample free cash-flows should keep yields fairly resilient around an average of 3.8%. Maintain NEUTRAL on the sector – SingTel [BUY, S$4.18 fair value] remains our top pick.

Source: OCBC Research - 25 Nov 2014