• 35%-owned Telkomsel benefits from a recovery in pricing since late-June, which has become more broad-based over time. However, we expect the 40%-owned Bharti Airtel to incur the third consecutive quarter of losses due to intense competition from Reliance Jio’s Monsoon Hungama offer.
• Singtel intends to maintain ordinary dividends at 17.5 S cents for the next two financial years (FY19 and FY20), which provides a resilient dividend yield of 5.5%.
• Maintain BUY. Target price: S$3.94.

WHAT’S NEW

Telkomsel - Pricing on the mend

• Competition intensified ahead of the deadline for mandatory pre-paid SIM cards registration by 30 Apr 18. Churn rate has normalised now that SIM card registration has been completed. Pricing has recovered since late-June after the Lebaran holidays.
• Telkomsel has removed starter pack data bonuses and increased prices for regular top-up packages. Pricing for monthly data packages has increased 11% in July.
• Competitor XL Axiata has subsequently increased pricing for selective packages in late-September. Thus, pricing recovery has become more broad-based.

Bharti Airtel - Hit hard by JioPhone

• Bharti Airtel's arch rival Reliance Jio reported a strong set of results for 2QFY19. EBITDA increased 13.5% q-o-q and EBITDA margin stood at 38.7%. Net profit was Rs6.8b. 
• Reliance Jio achieved a huge net addition of 37m subscribers driven by its Monsoon Hungama offer, which allows customers to trade-in any old phone for new JioPhone 1 by putting up refundable security deposit of Rs501 and paying Rs594 for a recharge plan of unlimited voice & data for six months (Rs99 per month). The promotion was undertaken to clear the inventory build-up for JioPhone 1. Subscriber base has expanded 82% y-o-y to 252m, the third-largest in India. ARPU was stable at Rs132 (Bharti: Rs105). Data usage per subscriber per month improved 3.8% q-o-q to hit 11GB.

Reliance Jio developed JioPhone 1, an inexpensive, web-enabled 4G feature phone targeted at the masses.

• It costs zero for customers as the security deposit initially, set at Rs1,500, is refundable after three years. Customers have to commit to a minimum top-up of Rs49 every month.
• JioPhone runs the proprietary KaiOS operating system and provides access to popular apps, such as YouTube, Facebook and WhatsApp. Customers can make free calls using VoLTE technology.

JioPhone 1 is the top-selling feature phone in India.

• JioPhone 1 will soon make way for JioPhone 2. JioPhone 2 has a 2.4-inch display and a full QWERTY keyboard, reminiscent of the BlackBerry. It went on sale since 16 Aug 18 at the price of Rs2,999 (US$41). JioPhone 2 was immensely well received and is already out of stock.

Amobee facing headwinds.

• Revenue from digital marketing decreased 7.1% y-o-y in 1QFY19. Management explained that Amobee was affected by a pullback in marketing spend by 4-5 major customers.
• Amobee faces competition from other programmatic advertising platforms, such as Trade Desk, MediaMath and AppNexus. We are concerned that Singtel may not be able to meet its guidance of mid-teens FY19 revenue growth for Amobee if the weakness in digital marketing persists.

EARNINGS REVISION/RISK

• We maintain our existing earnings forecasts.

SHARE PRICE CATALYST

• Singtel is the least affected by a fourth mobile operator in Singapore as overseas businesses accounts for about 70% of its bottom line.
• Singtel is the largest and most liquid defensive stock listed on the Singapore Exchange and to trade at a premium.