• Defensive business & cash-flows
• Dynamics could change; but not majorly
• Yields are still important

Decent start to 2016

The three telcos made a pretty decent start to 2016, with results mostly coming in within our expectations; this is especially noteworthy, given the spate of 1Q earnings disappointments across a broad swathe of sectors. The telcos have also largely kept their guidance for the rest of the year, which could not be said again for many other companies.

No reaction to new MNVO

Recently, we saw MVNO (Mobile Virtual Network Operator) Circles.Life launch its mobile services; this through a leasing agreement with M1. However, with Circles.Life offering pricing plans pretty similar to what the current incumbents are offering, there was not much of a reaction from three telcos.

Eyes remain on potential 4th telco

Instead, we believe that the three telcos are saving their ‘bullets’ for the potential entry of a 4th telco; recall that the IDA has set aside a block of 4G spectrum at a special reserve price for a new operator at the upcoming auction in 3Q16. In our view, a new physical operator will probably have more disruptive impact on the market; so far, we have already seen a round of “price cuts” from the incumbents.

Maintain OVERWEIGHT for now

Amid a more uncertainty economic environment, we believe that investors could continue to seek out these companies, not only for the defensive businesses, but also their stable dividend payout policies. Hence, we maintain our OVERWEIGHT rating on the stock; but we are mindful of the ongoing challenges in the sector, not only in the mobile segment, but also the Pay TV segment for both Singtel and StarHub. For now, Singtel (BUY, S$4.09 FV) remains our top pick.

Source: OCBC Research - 26 May 2016