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Singapore Telcos – OCBC Investment 2018-12-05: Stick To The Defensives

(Source: research.sginvestors.io)



Two answers to the TPG Telecom question

Not long now

Analyzing the sector three-ways

Challenges at every turn

Prefer Singtel among the Three

  • Among the three telcos, we believe that Singtel’s geographical diversification should help provide some relief. Singapore constitutes 33% of Singtel’s 1HFY19 PBT/EI, while Singapore mobile service and equipment forms 9.1% of group operating revenue.
  • We also think it is instructive to look at yield projections. For the next FY, we estimate Singtel to trade at a yield of 5.7%, while that of StarHub to be 6.4%, resulting in a relatively narrow spread. We estimate M1 to trade at a yield of 4.9% in the next FY, though this could see downside risk should the VGO be successful, given that the Offeror has already highlighted that dividends could be affected on the back of intensifying competition as well as the allocation of resources required for transformation efforts.

Boring is the new sexy

  • While Singtel remains our preferred pick among the 3 telcos, we also believe investors should not ignore NetLink NBN Trust (SGX:CLJU).
  • In our opinion, the near-term growth path for NetLink NBN Trust across the residential/non-residential segments remains clear, while also well-leveraged to the Smart Nation initiatives being rolled out in Singapore. Crucially, we believe that NetLink NBN Trust’s business model is resilient and less susceptible to the vicissitudes of the financial markets, especially in the late stage of the cycle.

More Info: research.sginvestors.io

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