Singapore telcos face stiff competition ahead

Singtel is RHB’s top pick.

Singapore’s major telecom operators saw roaming traffic improve and cost restraint ease during the fourth quarter of last year, although RHB Research cautioned that tight competition in the industry is expected to continue moving forward.

Analysts at RHB said the telco industry posted mixed results during the latest reporting season, with FX weakness and lower associate contributions hurting Singapore Telecommunications Ltd., while StarHub exceeded expectations due to lower-than-expected depreciation.

Overall, the sector’s mobile average revenue per unit (ARPU) continued to increase mainly due to recovering roaming traffic and greater 5G adoption. The enterprise segment, however, was still hampered by the challenging macro environment and prolonged inflationary pressures, despite a resilient “structural demand” for digital.

Moving forward, they said the sector will likely keep its focus on cost optimisation while market consolidation remains a possibility for the medium to long term.

“Competition within mobile still keen with Simba Telecom on the offensive,” they said in a 14 March note. “While the price skirmish is largely focused at the lower end of the market and involves mobile virtual network operators, Singtel and StarHub have responded via tactical promotions.”

Singtel was RHB’s top pick thanks to its improving return on invested capital, capital management prospects, and exposure to key markets undergoing price reparation.

“We believe Singtel is on track to meet the higher end of its 70-90% DPR (1HFY24: 77% DPR), supported by capital management activities and 1.5x net debt/EBITDA,” the analysts wrote. “Downside risks: Competition, weaker than expected earnings and FX rates.”

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