• Minimal impact from 4th telco entry
• Diversified earnings base
• Paring ARPU assumptions

4th telco in Singapore has minimal impact on group earnings

Based on Singtel’s 9MFY17 results, we estimate only 5% and 4% of Singtel’s group total revenue and EBITDA are derived from Singapore’s mobile market (assuming equipment sales are majority derived from handset sales), respectively. While we do acknowledge that competition in the mobile market will intensify with TPG expected to launch mobile services in 2018, coupled with Circles.Life (Singapore’s only Mobile Virtual Network Operator) recently aggressive promotional activities, we believe the impact of TPG entry as Singapore’s 4th telco will be minimal on Singtel group earnings given its diversified earnings base.

Strong long-term outlook

As highlighted previously, we remain positive over Singtel’s longer-term outlook on two reasons: 1) its growing exposure to the cyber security, digital marketing and ICT-related industries, and 2) its entrenched position that gives it significant exposure to regional mobile businesses, which we believe will benefit as data usage grows alongside smartphone penetration rates. We believe the first reason has the potential to be a significant growth driver of Singtel’s enterprise business given that Singapore’s Committee on the Future Economy (CFE) has also identified these industries to have high-growth potential.

Reiterate BUY with unchanged FV of S$4.27

On the General Spectrum Auction in Singapore, we expect Singtel to exercise its right of first refusal for 2x5MHz of 900MHz spectrum for S$20m, win another 2x5MHz of 900MHz spectrum for S$30m, win 2x15MHz of 700MHz spectrum for S$90m, and win 2x15MHz of 2.5GHZ spectrum for S$13.5m. And on the back of heightened competitive landscape of Singapore mobile industry, we now forecast for ARPU to fall 11% (prev: -5%) over the next five years by FY22. Consequently, we cut our FY17F PATMI by 2.1%, and lower our FV to S$4.25. Reiterate BUY as we continue to like Singtel for its long-term growth prospects and resilient earnings given its diversified portfolio.

Source: OCBC Research - 17 Mar 2017