Samantha Chiew  24/12/2019, 4:21pm

SINGAPORE (Dec 24): The mobile revenues of Singapore telcos will remain under pressure in 2020.

  In a report released on Dec 19, RHB Research' s team of analysts says it expects competition to be the key downside risk facing the industry in the coming year.

  According to the report, the local mobile market is both competitive and fragmented with SIM penetration at over 150%.

  With stocks having priced in the prospect of increased competition over the past two years from new entrants and structural revenue and ebitda pressures, RHB also believes that the telco sector&rsquo s risk-reward profile is largely balanced. On the back of this, the research house is staying &ldquo neutral&rdquo on the industry.

  &ldquo We expect industry mobile revenues and earnings to remain under pressure in 2020, given the extended weakness in usage revenues (international direct dialling, voice, and roaming) and data competition,&rdquo says RHB.

 

  In the past two years, the sector has seen more mobile virtual network operators (MVNOs) such as  Circles.Life...  jostling alongside mobile network operators (MNOs) Singtel, StarHub, M1 and TPG for customers.

  Meanwhile, RHB expects the telcos&rsquo ebitdas to remain relatively steady due to the tight focus on costs, digitisation initiatives, and lower traffic expenses.

  On the back of this, Singtel has recorded about $263 million in cost savings in 9M2019, while StarHub has realised over $120 million.

  RHB&rsquo s top pick within the telco sector is Singtel, albeit with &ldquo neutral&rdquo recommendation and a target price of $3.50. RHB recommends it due to its earnings diversity, with more than 70% of Singtel&rsquo s revenue coming in from outside Singapore, as well as dividend certainty.

  &ldquo We believe the stock&rsquo s risk-reward profile is largely balanced, with the resilient consumer business providing a buffer against headwinds in the enterprise segment and regulatory concerns,&rdquo says RHB.

  As for the sector as a whole, RHB believes that the frontrunners are Singtel and a joint venture between StarHub and M1 for the coming 5G roll-out.

  For the joint venture, RHB expects enterprise revenues to remain the major growth driver for StarHub and M1, providing them a buffer against weak mobile revenues.

  The joint venture has a modest share in the enterprise market, with enterprise revenue making up 24% of StarHub&rsquo s revenue in 9M19 and 13% of M1&rsquo s revenue in FY18, as compared to Singtel&rsquo s 26% in 1H20.

 

  However, RHB does not see the coming 5G network as a game changer.

  &ldquo While Singapore will be one of the first in the region to rollout 5G on the mid-band spectrum (3.5GHz), we see little impact on the sector in the medium term due to the already extensive fibre penetration and adoption nationwide and selected-use cases &ndash mostly confined to enterprise verticals and smart solutions for cities,&rdquo it adds.

  As at 4.14pm, shares in Singtel and StarHub are trading at $3.37 and $1.40, respectively.