SingTel – CIMB
Dialling back data bundles and launching LTE for smartphones
SingTel’s rebundling of smartphone plans to reduce data quota is not a surprise given its aim to monetise data. Though it is throwing in more SMS, this is unlikely to resonate with users given the waning usage in favour of data messaging. It also launched LTE for smartphones.
Given the lack of catalysts, SingTel remains a Neutral with an SOP-based target price of S$3.36.While we are concerned about the falling regional currencies, share price downside should be ringfenced by its modest dividend yield of 4-5%. StarHub remains our top Singapore telco pick.
SingTel is refreshing its smartphone plansbybundling1) less data. It now offers between 2GB and 12GB of data vs.a flat 12GB across all plans previously, and 2) 25% to 45% more SMS. Figure 1 overleaf summarises the plans. SingTel also launched an LTE service for smartphones, the first telco in Singapore to do so. It has made available three LTE handsets: HTC One XL, LG Optimus LTE and Samsung Galaxy S2 LTE.
What We Think
This is a step in the right direction but earnings impact is minimal. We take a positive view of SingTel’s lower data bundle but are not surprised as the telco has said that it wanted to better monetise the rising data usage. SingTel noted that 90%of users do not use more than 2GB/month, which means that it is only able to monetise 10% immediately. Nonetheless, ARPUs for these LTE users should be higher than for3G plans. Also, as usage rises over time, more users will be compelled to upgrade their plan. Singtel is bundling more SMS but this is unlikely to resonate with users given the waning usage in favour of data messaging. Under its new plans, SingTel now bundles more SMS but substantially less data than its rivals, as shown in Figures 2 to 4.
LTE take-up will be gradual and will improve when more handsets with better battery life become available.
What You Should Do
Switch to StarHub for its more attractive dividends of >6% which have upside potential given its low net debt/EBITDA of 0.5x.SingTel’s overseas units, which contribute 75% of its earnings, risk being diluted by weaker regional currencies.