■ Optus intends to go head-to-head with Telstra. Will involve higher capex in Australia.
■ Maintain HOLD on lack of catalysts, especially as dividends could be capped by higher capex. SOTP TP still SGD4.50. Prefer StarHub.
Two things stood out from Singtel’s annual Investor Day.
Singapore. Singtel intends to develop its data business further by drawing more home and mobile customers towards fibre and tiered data plans. At 71% and 61% penetration respectively, it believes there is room for growth. Management believes the entry of a new player exempted from strict rollout criteria should not be taken as a given. All Singtel asks for is a level-playing field.
Australia. Optus intends to wrest market share from Telstra, by matching the incumbent’s leading network quality. As such, higher capex of AUD1.7b this year could be sustained over the next few years, potentially capping Singtel’s ability to raise payouts. However, the higher capex should pay off if Optus succeeds.
Associates. Going into FY3/16, all associates expect to retain their data focus. Data growth was heavily emphasised in all their presentations. Globe & Telkomsel have also introduced digital services such as mobile video and e-payment that leverage Singtel’s investments and partnerships.
What’s Our View
Maintain HOLD along with our SOTP-based TP of SGD4.50. Earningsgrowth outlook may be muted but downside should be protected by yields of 4.5%. However, we caution against expecting overgenerous dividends as heightened capex could cap payouts. (Read Report)