SINGAPORE (Nov 11): RHB is maintaining its &ldquo neutral&rdquo call on Singtel with a target price of $4 as valuations are fair given the competitive pressure it faced in Australia coupled with its decent dividend yield.

Singtel is facing headwinds in Australia over pricing aggression, particularly from mobile virtual network operators.

However, the prepaid market in Australia is also heating up, with Telstra raising the stakes with a A$10 prepaid starter pack with 6GB data including 5GB bonus data, while Vodafone is giving out 3GB for every A$30 top-up.

This is exerting pressure on prepaid ARPU (average revenue per user) in a slowing market.

In a Friday report, RHB notes that the lower dependence on the Singapore domestic mobile market makes it less vulnerable to the threat of a new mobile entrant.

On the postpaid front, revenue would also be crimped by the service credits on its device repayment plan (DRP) &ndash launched in Feb 2015 &ndash until the impact permeates its postpaid base. ARPU pressure is expected in 2HFY17 with postpaid net-additions magnifying the DRP impact, notes RHB.

&ldquo Optus said it would align the increase to revenue trends, noting benefits from the exclusive English Premier League content,&rdquo says RHB, &ldquo Management said it is keen on the 700MHz spectrum which would be put up for auction in 2017.&rdquo

In Singapore, its mobile business outperformed its peers, with management saying its data upsize offer DataX3, which was launched in Sept, is value accretive , with more data subscribers opting for it. Also unlike the competition, Singtel has limited this offer to new and re-contracting customer. This has pushed up postpaid data usage to 2.8GB/subs/mth.

&ldquo The strong takeup of SIM-only plans during the quarter has nonetheless diluted postpaid ARPU, which fell 5.5% y-o-y to $69,&rdquo says RHB.

Meanwhile, the enterprise segment is also looking promising for Singtel, RHB notes. The telco is currently a major player in Singapore&rsquo s smart nation initiatives, which is in the implementation phase, while discussions are ongoing in Australia&rsquo s smart nation project.

The enterprise segment revenue grew 5% in 1HFY17, driven by cyber security (Trustwave), government infrastructure projects and on-boarding government agencies on the G-cloud platform, which more than mitigated the decline in legacy carriage revenue.

Shares of Singtel are trading 8 cents lower at $3.76.