TELCOs – CIMB

Nims no more

We are positively surprised by the regulators’ decision to drop plans for the development of a common set-top box (STB) for pay TV. This will be positive for the incumbents, especially StarHub, as it raises entry barriers. Newcomers will now have to provide a STB instead of using a common one.

We continue to advocate StarHub, for a potential increase in its dividends or capital repayment given its low net debt/EBITDA, providing re-rating catalysts.

What Happened

Singapore’s telecom and multimedia regulators have decided to drop their search for a standardised pay-TV set-top box, dubbed Project Nims (next generation interactive multimedia applications and services), as the bids would not have achieved the desired outcome. There were issues preventing some of the proposals from gaining traction, including technology and business constraints. It was supposed to be undertaken by NIMSCo to build, design and finance the project backed by grants from the government.

What We Think

This will be positive for the incumbents, we reckon, especially StarHub, since it would raise entry barriers for newcomers. Aspiring pay-TV operators would have to develop their STB rather than turn to a common one that would probably be supplied by OpenNet.

Nims initially was supposed to lower the barriers of entry and spur new players in the PayTV market while increasing content variety. With the cancellation of Nims, regulatory risk is now lower and the probability of higher dividends or capital management from StarHub has risen, in our view. The other risk cited by StarHub is global economic uncertainties.

What You Should Do

Stay invested in StarHub, our top telco pick. We like it for a potential increase in dividends or capital repayment, given its low net debt/EBITDA of 0.5x, the lowest among Singapore telcos and substantially below its target of 1.5-2x.

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