RHB Bank Singapore remains “neutral” on the telecommunications sector as the SIM-only market is set to stay competitive in an ex-growth market.
Singapore Telecommunications (Singtel) stands out as the Singapore research team’s preferred pick, with RHB maintaining its “buy” call with a target price of $3.60.
Singtel is on track for low double-digit ebit growth in FY2025 ending March. Its return on invested capital (ROIC) is projected to rise to 10% in FY2025, up from 9.3% in FY2024, driven by cost excellence and new growth engines such as data centres, NCS, and digital assets.
In 1HFY2025, core ebit from Singapore and Optus grew 12.8%. Optus saw a 58% surge in ebit (in Australian dollar or AUD terms) due to strong cost efficiencies, while NCS reported a 40% jump in ebit on improved delivery margins. Management is also halfway toward achieving its $200 million operating expense (opex) savings target for FY2025.
“Overall, we continue to see the group’s mid-term capital recycling target of $6 billion supporting the variable realisation dividend (VRD), with $1 billion (6 cents/share) to be recognised over the next six months,” say RHB’s analysts.
Meanwhile, RHB’s analysts have remained “neutral” on StarHub CC3 . Although StarHub is set to harvest the benefits from its multi-year transformation exercise, the “changing market dynamics could temper positive outcomes, with potentially lower revenue growth and shallower opex savings.”
See also: DBS upgrades PropNex and APAC Realty to ‘buy’ amid strong pipeline of new launches in 2025
Mergers and acquisitions (M&As) are also expected to lend more excitement to the telecommunications sector. This includes market talk of a StarHub-M1/Simba Telecom union that could “right-size” the acute competition in the mobile virtual network operator space.
“We think 2025 could bring more M&A flow for the sector, helped by the interest rate downcycle and strong investment propositions specifically for infrastructure assets. Telcos are also looking to strengthen their franchise values on the “techco” journey and on the back of the artificial intelligence (AI) boom,” say RHB’s analysts.
As at 12.14pm, shares in Singtel and StarHub are trading at $3.07 and $1.21 respectively.
