Stiff­en­ing com­pe­ti­tion could sti­fle Sing­tel but div­i­dends still se­cure

Singapore Business Review - - CONTENTS -

When Sing­tel an­nounced sta­ble full-year re­sults for FY17 and an im­pres­sive 42,000 new post­paid sub­scribers in the first quar­ter – the high­est in the coun­try – it was still not enough to dis­pel fears of an im­mi­nent earn­ings tur­bu­lence. An­a­lysts point to in­creas­ing com­pe­ti­tion in Sin­ga­pore and Aus­tralia as a key cul­prit, putting pres­sure on mo­bile ser­vice rev­enues, although the telco is ex­pected to re­tain its bal­ance sheet strength and at­trac­tive div­i­dends.

In In­dia, Sing­tel has been wor­ry­ing about the price-led war that has pum­meled Bharti Air­tel, in which the former had re­cently upped its stake and is its sin­gle largest share­holder. This year, TPG Telecom’s play to be­come a ma­jor op­er­a­tor in Sin­ga­pore looks to bring ad­di­tional headaches for Sing­tel. Other head­winds like for­eign cur­rency fluc­tu­a­tions could also put the telco in a tough spot, but it should re­spond by fo­cus­ing on its net­work cov­er­age ex­pan­sion and dig­i­tal­i­sa­tion ini­tia­tives, as well as low­er­ing its debt.

“Man­age­ment ex­pects to close the cov­er­age gap with Telstra — 98% pop­u­la­tion cov­er­age — by 2018, which along­side the strong con­tent bundling would put it in a solid po­si­tion to fend off com­pe­ti­tion from TPG Telecom (TPG), which would likely com­pete on price,” says RHB.

“Whilst com­pe­ti­tion re­mains in­tense across all seg­ments, Op­tus would look to fur­ther op­ti­mise its cost base via dig­i­tal­i­sa­tion ini­tia­tives, and to cap­i­talise on group-wide pro­cure­ment sav­ings,” the firm adds.

Nidhi Dhruv, vice pres­i­dent and se­nior an­a­lyst, and lead an­a­lyst for Sing­tel at Moody’s, ex­pects Sing­tel to em­bark on a delever­ag­ing strat­egy, driven mainly by debt re­duc­tions, to bring met­rics in line with its rat­ing and in con­sid­er­a­tion of pos­si­bly in­ten­si­fy­ing com­pe­ti­tion in the Sin­ga­pore mo­bile mar­ket.

One bright spot for Sing­tel is that its div­i­dends should re­main the most se­cure and sta­ble in the in­dus­try de­spite higher-than-ex­pected spec­trum cost due to fore­casted de­clines for the other two tel­cos, says Gre­gory Yap, an­a­lyst at May­bank Kim Eng. He also notes that if TPG is un­able to cope with ex­pand­ing into two new mo­bile mar­kets si­mul­ta­ne­ously, then in­cum­bents like Sing­tel “will get some breath­ing room.”

Sing­tel’s re­cent per­for­mance was also good, ex­cept for the lower-than-ex­pected per­for­mance of Air­tel, which was the main drag for the telco. FY17 core net profit is 2% above CIMB’S fore­cast. The telco also saw strong net adds quar­ter-on-quar­ter for its post­paid and pre­paid seg­ments.

Other head­winds like for­eign cur­rency fluc­tu­a­tions will put Sing­tel in a bind, but Sing­tel should re­spond by fo­cus­ing on its net­work cov­er­age ex­pan­sion and dig­i­tal­i­sa­tion ini­tia­tives.

Sing­tel main­tained a div­i­dend pay­out ra­tio of 73%

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