Investors have been closely watching for details regarding the 4th telco operator in Singapore. Shares of telcos have fallen after TPG Telecom was selected to become Singapore's 4th service provider.

Both StarHub and M1 are currently trading just above their 52-week lows of $2.73 and $1.90 respectively. Meanwhile, SingTel remains relatively stable, well above its 52-week low. The main reason why SingTel has been least affected compared to the other service providers is because net income from Singapore only makes up 29% of its total net profits. The upcoming 4th service provider for Singapore, TPG Telecom, would affect SingTel the least among the incumbents.

SingTel can count on opportunities in emerging markets

The proportion of profits from mobile customers in Singapore for the three service providers are shown below:

Mobile Customer Base (millions)4.102.312.02
Market Share (%)49.027.323.7

The mobile penetration rate in Singapore, which is calculated by dividing the total number of mobile subscriptions over the total population, is currently around 150%. I believe that the market is already saturated, with little room for growth. The upcoming entry of TPG into the local market would erode some of the profits of the incumbents. With the bulk of their profits coming from Singapore consumers, going forward, I think both StarHub and M1 shareholders would have to settle with a lower dividend yield.

SingTel remains well diversified, as it owns stakes in leading telcos in emerging markets such as Thailand, India, Indonesia and Philippines. The best opportunity for growth comes from these emerging markets, as the mobile penetration rates there are relatively low. As large numbers of the population in emerging markets climb out of poverty, demand for mobile phones and mobile data would get stronger. SingTel has a 36.5% effective interest in India's leading telco, Bharti Airtel, which currently has 80 million mobile customers in various African nations, and the number of customers is set to rise.

Smart Cities to drive demand for IT services 

SingTel's Group Enterprise business segment would potentially benefit from Singapore's target to build a Smart Nation. For the third quarter ending Dec 16, EBITDA from SingTel's Group Enterprise business segment accounted for S$455 million out of a total of S$1221 million. Building a Smart Nation requires would increase demand for SingTel's services that include solutions for data infrastructure, cloud computing and cyber security. Recently, Singtel has also set-up a new security operations centre in Tokyo to provide cyber security solutions.

My Thoughts

Telecommunications are generally defensive stocks, and most investors buy them as income stocks, for their high and stable dividends. In addition to distributing stable dividends, SingTel still has the potential to expand into emerging markets and benefit from Singapore's ambition to develop a Smart Nation.

As an income stock, we can expect SingTel to fall slightly if the Federal Reserve raises interest rates this month, because investors would seek a higher yield. Personally, I'm looking to accumulate SingTel whenever its P/E goes below 15, giving a dividend yield of around 5%, as I believe that SingTel is the best pick among the three telcos here.


This research report is based on information obtained from sources believed to be reliable. AlpacaInvestments does not make any representation or warranty as to its accuracy, completeness or correctness. Whilst we have taken all reasonable care to ensure that the information contained in this publication is not untrue or misleading at the time of publication, you should not act on it without independently verifying its contents. This publication has not been reviewed or authorized by any regulatory authority in Singapore or elsewhere. AlpacaInvestments accepts no liability arising whether directly or indirectly as a result of the recipient acting on such information or opinion or estimate. This report is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. AlpacaInvestments may from time to time have interests in the securities mentioned in this report, and our opinions expressed in this report are subject to change without notice. This report is intended for information purposes only, and should not be regarded as a substitute to your own judgement. 

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