Don’t buy Singapore telco shares … yet: UOB KayHian

Knife display at Daiso in SingaporeKnife display at Daiso in Singapore

Investors shouldn’t try to “front-run” to buy telco shares ahead of the launch of Singapore’s fourth telecom in the fourth quarter, UOB KayHian said in a note on Monday.

“Investors should not catch a falling knife by investing before TPG launches its mobile services,” the brokerage said.

UOB KayHian analyzed how Singtel shares behaved after StarHub launched its mobile services in 2000, noting that while M1 launched mobile services in 1997, it didn’t list on the exchange until 2002.

Singtel shares dropped nearly 30 percent in the three months before StarHub’s launch, but recovered nearly 4 percent in the three months afterward, the brokerage said, noting the stock suffered significant de-rating.

‘Falling knife’

“Investors should not catch a falling knife during the three months before TPG launches its mobile services,” it said, based on the historical Singtel stock performance. “The best time to bottom fish in the telco sector would be the second month after TPG’s launch.”

But the brokerage also noted that “this time, it’s different,” with Singtel’s operations now more geographically diversified, with overseas operations accounting for 63 percent of group pre-tax profit.

It’s Market Weight on the sector amid TPG’s looming entry. It has a Buy on Singtel, with S$4.40 target, for geographic diversification and growth in Indonesia, India and Thailand.

It added that “yield-oriented” investors should consider NetLink NBN Trust, rated Buy with a S$0.93 target.

It rates M1 at Hold with S$1.84 target, noting it’s more susceptible to competition from TPG due to its youth-market focus.

‘Entrenched’ Singtel and StarHub

“Conversely, Singtel and StarHub are more entrenched in serving corporate customers. Singtel and StarHub are also better able to bundle multiple services,” it said.

It rates StarHub at Hold with S$2.70 target.

Singtel ended Tuesday up 0.59 percent at S$3.41, StarHub ended down 0.81 percent at S$2.44 and M1 was down 0.56 percent at S$1.78. NetLink NBN ended up 0.61 percent at S$0.82.

While you’re here ...

  • We hope you enjoyed this article. Our work takes money and effort to produce, but Shenton Wire hasn’t put up a paywall. Your voluntary monthly subscription fee can help keep our paywall down — and that’s one less password for you to remember. You can cancel at any time.
    Price: $ 18.00