Optus had raised prices for its SIM only plans by 5%-6% or by A$3 to A$49 per month and A$62 per month for small to medium sized data bundles. These new plans do, however, come with far bigger data allowances, which serve to likely soften subscriber resistance to these new plans with a more for more strategy.
For its higher-end postpaid plan, the price has been increased by 19% to A$82 from A$69.
Given new price points remain at a material discount to Telstra’s price points and the fact that key competitors have earlier raised prices, Citi Research analysts Arthur Pineda and Luis Hilado see limited downside risk from subscriber migration to competitors.
They also have kept their “buy” recommendation and $3.54 target price on the stock.
The financial impact will likely take one to two years to fully flow through, as subscribers will need to gradually migrate from legacy plans into the new plans given post-paid lock-ups.
“We estimate that every A$2 increase in ARPUs would raise Optus’ FY2025 EBITDA by A$137 million and Singtel’s group profit by 2%. Moreover, an increase in Optus’ profitability would serve to improve the benefits of any potential monetisation exercise,” say the analysts
See also: OCBC, citing potential recovery, initiates coverage on Nanofilm with tentative 'hold' call
For instance, A$200m improvement in EBITDA could serve to raise value by A$1-1.2 billion based on a 5-6x EBITDA multiple. “As such we see no rush to a divestment as Singtel could benefit from better values,” they say.
Downside risks that could prevent the shares from reaching the target price include: Singtel’s benchmark stock status renders it vulnerable to broader market sell-downs; volatility in regional currencies which may result in varying S$ translation of earnings and value; and potential earnings risks linked to new expansion areas such as enterprise services.
Upside risks include: continued monetisation of assets such as data centres/enterprise assets, which could allow for asset revaluations; improvement in competition in key growth engines such as Indonesia and India; and a significant easing of interest rates, which would bring back interest into yield plays.
See also: Macquarie revises Singapore earnings growth for FY2024 to 7% from 3%
Maybank Securities analyst Hussaini Saifee too has kept his "buy" call and $3.24 target price on the back of the increase in Optus post-paid prices.
"We estimate this will increase FY2025-FY2027 Singtel group EPS and FCF by 1-2%. We think the price increases indicate competition in the sector has become more rational and the backlash from customers caused by Optus’ network outage in November 2023 has subsided," says Saifee.
The analyst thinks that this adds visibility to Optus’ ability to pay higher-for-longer dividends.
As at 9.42am, shares in Singtel traded at $2.46.
