Telecom Sector - Prudent sharing of network
- Positively surprised on potential active-network sharing by StarHub and M1.
- We estimate ~20% capex savings for both the companies from 2018 onwards.
- Upgrade StarHub and M1 to HOLD as negatives are priced in.
Positively surprised on potential active-network sharing.
- M1 and StarHub have signed a Memorandum of Understanding (MOU) to study potential collaboration in mobile infrastructure sharing, with a focus on sharing radio access network (RAN), backhaul and access assets.
- For many years, M1 and StarHub have been sharing mobile infrastructure such as antenna systems, in-building fibre and tunnel cables. Both the companies intend to share mobile network radio elements while keeping individual mobile core networks. Not much details have been disclosed at this stage.
Estimated ~20% capex savings for both the companies from 2018 onwards.
- Various industry estimates suggest 20% capex savings on sharing of RAN and 40% capex savings on sharing of RAN, core network and spectrum. M1-StarHub intend to share RAN as per MOU.
- In highly dense and urbanised Singapore, we estimate RAN to account for most of the capex with sharp rise in data. A number of telcos in Europe including Telenor, Vodafone and O2 have been sharing active networks. More importantly, we think TPG may find it more challenging to compete with players having sizeable network capacity.
Upgrade StarHub and M1 to HOLD.
- Most importantly, capex savings can help StarHub to sustain fixed dividend commitment of 20 Scts DPS (~6.5% yield) and M1 to sustain 80% earnings payout ratio (~6% yield) in FY18 and beyond.
- We continue to model 8.5% mobile revenue share for TPG in 2022, which may be little bit aggressive if incumbents can build network capacity cheaply.
- Our revised DCF-based TPs for StarHub and M1 are S$3.01 (prev. S$2.65) and S$2.09 (prev. S$1.78) respectively.
- The key reason for not upgrading StarHub to BUY is potential mid-single-digit decline in FY17F earnings due to a sharp drop in adoption grant for National Broadband network.
- M1 may also see a similar decline in FY17F earnings due to adverse impact of fair value accounting for iPhones.
rate_review M1 - DBS Research 2017-01-13: Fourth player concerns reduced by network sharing
rate_review Starhub - DBS Research 2017-01-13: Boost from network sharing