Hey, mate: SingTel has got some Aussie competition

Competition is easing in India and Indonesia, but SingTel has to keep an eye on Aussie’s Telstra who’s looking to regain market share.

But SingTel still remains CIMB’s top pick given its recent share price weakness which throws up attractive valuations and dividend yields, amidst improving fundamentals for most of its units.

Here’s more from CIMB:

Positives falling into place at SingTel. SingTel (Outperform, TP: S$3.34) is one of our top picks given its attractive valuations and dividend yields. After some years of negatives, the fundamentals of SingTel’s associates are improving. Competition is easing in India and Indonesia, which benefits Bharti and Telkomsel. Thailand has a new, telco-friendly government. Competition is receding and margins are bottoming out in Singapore. The key concern is the risk of intensifying competition in Australia where Telstra is looking to regain market share. However, we think that this negative is outweighed by the many positives.
Our presentation in brief. We presented our view that lower-margin data revenue is starting to substitute the higher-margin voice and SMS revenues of telcos in Indonesia and, to a lesser extent, Malaysia due to a change in consumer behaviour. In our view, Singapore and Thai telcos are the least affected because 1) postpaid users in Singapore users are almost entirely on contracts that lock them into a minimum monthly spend, and 2) since there is no SMS culture in Thailand, data messaging is not a threat to voice or SMS, in our view.
Singapore telcos offer a combination of fairly attractive dividends in an environment of receding competition. SingTel is our top pick given its recent share price weakness which throws up attractive valuations and dividend yields, amidst improving fundamentals for most of its units. We also like StarHub for its attractive dividend yields.
Some feel that SingTel is stuck in a trading range and its share price may not be re-rated. We believe that SingTel has traded sideways over the past two years because of a series of challenges at its major units 1) price competition and heated 3G spectrum bidding for Bharti, 2) competition from XL Axiata for Telkomsel, 3) regulatory uncertainties for the Thai telcos, and 4) concern that SingTel overpaid for the exclusive broadcast rights to the Barclays Premier League.

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