Maybank Securities analyst Hussaini Saifee is keeping his “positive” rating on the Singapore telecommunications (telco) sector as competition in the mobile and fixed broadband (FBB) space grows.
“While mobile consolidation was a hope of competitive rationalisation, Simba’s improving fundamentals, balance sheet scale and wide average revenue per user (ARPU) gap versus incumbents suggest it is favourably placed to continue to take market share,” says Saifee.
Even though the telco has garnered a revenue market share of just 4.8%, it has already attained a “healthy” ebitda margin of 42%. Simba is also already free cash flow (FCT) positive, which is a plus to Saifee as regional telcos are not able to achieve this even with a revenue market share of 15% to 20%, Saifee notes.
He adds that there is “ample room” for Simba to gain the lower end of the sector’s market share with the telco’s SIM-only plans still priced at 50% below its incumbents as well as its attractive roaming offers.
“Simba also has room to invest in the network and potentially make inroads in the higher-end market,” the analyst continues. “Simba recently entered the highly commoditised FBB space and is looking at the experience of MyRepublic and M1, and we see room for it to take 5% - 6% market share.”
See also: UOBKH calls Centurion Corp a stock for ‘growth-minded investors’
Even though Simba’s entry may result in a less effective move to consolidate the industry, it “raises hopes” that a four-player and highly competitive Singapore market may also improve services.
“However, our game theory analysis suggests Simba may prioritise market share gains over profitability in light of [an] already improving financials in a highly competitive market, balance sheet strength and just 5% market share [which] is not sustainable in the long term,” Saifee writes.
“Given these dynamics, we think the desired results of industry consolidation may not percolate to the incumbents. While Simba’s performance pales on the 5G spectrum, we note that 5G use cases in the consumer space are relatively limited and thus are not a major competitive disadvantage,” he adds.
See also: With 300MW wind-solar project win in India, Sembcorp at 64% of 2028 renewable energy goal: CGSI
Downgrade StarHub to ‘hold
To this end, Saifee has downgraded StarHub to “hold” with a lower target price of $1.30 from $1.44 due to lower mobile and FBB growth expectations from the telco. Saifee has also lowered his NPAT estimates by 4% to 5% for FY2025 to FY2026 for the same reasons.
“Roughly 41% of Starhub’s revenue comes from mobile and the FBB space and likely a bigger portion of its ebitda. A sustained aggressive Simba may continue to weigh on its growth even if the industry undergoes consolidation, in our view,” Saifee writes.
However, with StarHub trading at 6 times its ev/ebitda and 13 times its P/E, the telco’s valuations are “broadly in-line” with its five-year historical mean.
Meanwhile, Saifee has kept his “buy” call on Singtel with an unchanged target price of $3.70 a less than 10% of the telco’s sum of the parts (SOTP) is Singapore-consumer driven, which means it remains “relatively shielded”.
As at 12.16pm, shares in StarHub are trading flat at $1.21 while shares in Singtel are trading 4 cents lower or 1.25% down at $3.16.
