In an unexpected twist, transport operator SMRT Ltd announced that it is entering an agreement with OMGTel Pte Ltd (OMG) to work exclusively in connection with OMG’s bid for the fourth telco licence in Singapore. According to SMRT, the collaboration agreement will be for the provision of such services and will seek to leverage on synergies that can be derived from SMRT’s extensive media presence and commuter reach.

SMRT adds that it also has the opportunity to invest up to S$34.5m via an option to subscribe for shares in OMG. The agreement is not expected to have a material impact on SMRT’s FY16 results, but without further details on the agreement terms, the implications over the longer term for SMRT remain uncertain. Hence, pending details from management, we opt to put our BUY rating on SMRT and FV of S$1.85 under review for now.

Recall that MyRepublic has also earlier expressed interest in bidding for the 4th telco licence. Again, some of the key hurdles that a new entrant face is the ability to scale up coverage and offer product differentiation from the existing three incumbents, especially in a highly saturated market like Singapore. We currently have a NEUTRAL rating on the telco sector.

Source: OCBC Research - 16 Apr 2015