TELCOs – BT

Buy M1, SingTel, StarHub for their safe-haven status: Citi

All 3 outperformed the stock market in last 3 corrections

BUY the three listed telcos for their safe-haven status, given that markets are at all time highs, said Citi in a report this week.

It noted that the telcos outperformed the stock market in the last three corrections earlier this year, in 2006 and 2004, a point Citi had highlighted last month.

‘This track record should encourage ownership of all three Singapore telecom stocks, given that the markets are at all time highs,’ it said.

As domestic consumption stories, the telcos are largely insulated from the risk of a global economic slowdown, Citi had said in a September report on Asian telcos.

‘It’s all about relative outperformance though. No one single telco has delivered a positive return over the last three corrections (StarHub comes close),’ it said.

In the 2004 market correction, M1 outperformed the Straits Times Index (STI) 5.6 per cent while SingTel was 0.2 per cent higher.

StarHub was only listed in October 2004.

During last year’s correction, M1 outperformed 7.6 per cent, SingTel 0.4 per cent and StarHub 13.3 per cent.

During this year’s correction, the outperformance of M1, SingTel and StarHub was 10.9 per cent, 0.3 per cent and 5.9 per cent respectively.

In the latest report, Citi said the Singapore telcos are benefiting from the immigration-driven consumption growth and robust economic activity.

Yesterday, the government said preliminary third-quarter growth was 9.4 per cent. Economists are expecting full-year growth to exceed the official 7-8 per cent forecast.

Last month, government data showed that Singapore’s total population rose 4.4 per cent in 2007 to 4.7 million, boosted by foreigners.

The non-resident population grew about 14.9 per cent in 2007 to cross one million. Non-residents accounted for about 130,000 or 66 per cent of the total population increase.

The resident population grew 1.8 per cent in 2007 and in absolute terms, it was 66,600 from a year ago.

Citi’s economist Chua Hak Bin said: ‘The proportion gives a sense of distribution of current job growth, with about two-thirds of jobs going to non-residents.’

Job growth has been strong with total employment at 2.61 million at end-June 2007, up from 2.5 million at end-2006 and 2.32 million at end-2005.

Job growth was about 113,800 in the first half of this year. Manpower Minister Ng Eng Hen said a record 200,000 jobs at least will be reached this year.

The telcos focus much of their marketing, particularly pre-paid mobile services, on the foreign worker segment.

Citi has revised upwards its price target for SingTel to $4.40 from $3.90.

It likes SingTel for three reasons – its stakes in regional telcos, especially India’s Bharti, solid domestic earnings momentum and capital management efforts.

As for StarHub, the telco has the best exposure to Singapore’s vigorous growth, Citi said, also giving a new target price of $3.60 from $3.30.

M1 has been upgraded to ‘buy’ from ‘hold’. Citi said while M1 is structurally the weakest of the three operators, its good yield offsets lower growth prospect. Citi cites a 11 per cent prospective yield and noted that an interested buyer in Keppel has increased its holdings to 19.9 per cent versus 18.2 per cent in June.

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