Singapore Telecoms Sector in Stormy Weather

A fund manager dumps Singtel shares. M1 is up for sale. Starhub could see its dividends cut. What’s going on?

Singapore Telecom Sector is in Stormy weather.

The old days of boring but stable dividend investing are over.

In 2016, the IDA (Singapore Telecoms regulator) decided to stir the pot by opening up the sector to a 4th player, brushing aside protests from the incumbents. The government is not satisfied with status quo. It wants a Smart Nation, but the telcos are dragging their feet. As listed companies, the telcos pay more attention on profits than on innovation. Also, the APRU (average revenue per mobile user per month) in Singapore is higher than Hong Kong, France, UK and Korea. And profitability by the Singapore Telcos – Singtel, Starhub and M1 – are among the most profitable in Asia.

But no longer. TPG will soon join the party as the 4th teleco. TPG aims to get 5-6% market share in Singapore within a relatively short period of time. This implies a price war – similar to the case when M1 and Starhub enters the market years ago. TPG is the 2nd largest telco in Australia. It is known to be a disrupter and price competitive. Mobile prices in Singapore could come down by 15-25% according to Credit Suisse.

What does this mean for M1, Starhub and Singtel?

M1

  • Most vulnerable given its pure play mobile operations. It does not have any other business to offset the direct hit from a new entrant.
  • Things are so bad that its key shareholders SPH and Keppel T&T have called for a “strategic review” of their stakes. In other words, they are willing to sell out.

Starhub

  • Starhub’s traditional strength lies in its “triple play” anchored around its pay-TV business. But the pay-TV business have been disrupted by the likes of Netflix.
  • In the past few years, it paid between 90-150% of its profits and free cashflows. As its profitability comes under pressure, it will need to cut its dividends.

Singtel

  • The strongest player. But emergence of TPG in Singapore and Australia will mean that it will lose market share and profitability will take a hit.
  • Its other businesses are unable to offset the earnings hit from TPG
  • Stiffer competition worries Henderson Global, a $130 billion fund manager, so much that it decided to dump all its Singtel shares.

 

Bottom-line

The good old days of stable dividends investing for telecos are over. The landscape is changing and even mega institutional managers are looking for cover. Make no mistake. This is stormy weather and trade at your own peril!