Singapore Telecommunications Ltd - Stock Analyst Research

Target Price* 3.050
RecommendationACCUMULATE
Market Cap*-
Publication Date5 Sep 2022

*At the time of publication

Singapore Telecommunications Ltd - Momentum in mobile prices

  • At the recent investor day, a key highlight was the recovery in mobile prices in Singapore, Australia, India and Indonesia from the benign competition and the return of roaming revenue.
  • Business segments with softer outlooks include AIS and NCS. Softer AIS outlook is due to intense competition, and for NCS it is the near-term ramp-up in headcount and staff cost.
  • Our ACCUMULATE and SOTP TP are maintained at $3.05. The group aims to raise ROIC from 5.4% to a high single digit in the mid-term, essentially doubling earnings. The tailwinds for the group include rising mobile prices and the disposal of loss-making subsidiaries.  Other drivers such as 5G monetization, cost optimisation and IT services, will be more elusive, in our opinion.

 

Key Highlights from Singtel Investor Day

 

  1. Singapore consumer: Recovery in roaming and prepaid

    1. The return of foreign workers is supporting prepaid revenue. Healthy take-up of 5G prepaid as going online is important. Take-up of 5G also improves as handsets become more affordable. Competition is aggressive in prepaid despite the strict requirement of only three prepaid SIM cards per subscriber.
    2. Roaming revenue has returned to 46% of pre-pandemic level. Business travellers are staying longer and price plans need to adjust for longer roaming. Roaming can improve further as Korea, Japan and China have not fully opened.
    3. Broadband is experiencing upgrades to higher price plans.
    4. EPL is operationally challenging and there can be cost savings. Including OTT apps in mobile plans is not a new bundling plan and is less convenient. The focus is on non-EPL sports content and ethnic programmes.
    5. Rolling out 5G coverage indoors is challenging. And limited spectrum can impact the quality of the network to meet IMDA requirements. The increased spending on 5G has been a trigger for market consolidation in other countries.

     

     

    NCS: Still in the investment stage

    1. The largest systems integrator in SE Asia with more than 12,000 workforce. NCS’s strength has been in public service, defence and homeland security.
    2. The target is S$5bn revenue in 5 years from the current S$2.4bn.
    3. Look to increase headcount from more cost-competitive countries such as India and Vietnam. The headcount could rise to 20,000 in less than 4 years.
    4. There is cost pressure from rising wages, increasing the workforce plus acquisition costs. The ability to raise the price and penetrate the new market will require time.

     

     

    Regional Data Centre: Doubling in capacity

    1. Current 60MW capacity (7 data centres) in Singapore generates S$250mn in revenue and 60% EBITDA. There is another 60GW underway. Tuas will commence with 30MW and another 30MW in the pipeline in Singapore. Thailand is expecting 20MW and Indonesia more than 100MW.
    2. The capital cost in the building data centres is around S$4.1mn per MW. Important factors in a datacentre include fault tolerance; telecommunications network; power lines; batteries and site selection.
    3. The largest operating expense is utilities (70% of total). Around 2/3 of the data centres have pass-throughs from higher utilities. The balance will be renegotiated when contracts are due. Between 30-40% of the power is consumed by cooling.
    4. Announced capacity by competition can be only landbank and no connectivity and power. In the joint venture with Gulf Energy and AIS, land has been secured to develop 20MW. Gulf Energy has capabilities in renewable energy; AIS the telecommunications reach and Singtel the relationship with hyperscalers.
    5. An important metric for the datacentre is power usage effectiveness (PUE). The power used to operate the servers and other equipment. The best practice is 1.4, with hyperscalers drive to 1.3. The newer datacentres being built will have much more hyperscalers.

Optus: Raising prices and capex to peak this year

  1. Enjoys a 33% market share in mobile. Competition is fierce with 40 MVNOs that compete on price. Pricing has been softer recently due to the ceasing of insurance plans (A$1.20) and fewer late payment fees. In July 2022, postpaid prices increased from A$55 (80GB) in May 2021 to A$59 (100GB).
  2. Roaming is 40-45% of pre-pandemic levels but Chinese tourists and foreign students are still missing. Outbound roaming is larger than inbound but roaming revenue is not as large as in Singapore.
  3. The Telstra-TPG network merger is not competitive. Telstra gets access to TPG spectrum and TPG gets access to Telstra’s network. It is a backdoor for Telstra to secure more spectrum when there is a cap in the auctioning process.
  4. Capex will be elevated this year to 18-20% of revenue due to 5G, one-off satellite Capex; new exchange and replacement of Huawei equipment.
  5. Hard to achieve comparable ROIC similar to the group as a result of the huge A$10bn capital in the business.

About the author

Paul Chew
Head of Research
Phillip Securities Research Pte Ltd

Paul has 20 years of experience as a fund manager and sell-side analyst. During his time as fund manager, he has managed multiple funds and mandates including capital guaranteed, dividend income, renewable energy, single country and regionally focused funds.

He graduated from Monash University and had completed both his Chartered Financial Analyst and Australian CPA programme.

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