Excerpts from analyst's report


sachinmittal4.14DBS Vickers analyst: Sachin Mittal (left)

•   SMRT’s participation  to beef up the case of 4th telco entry ; SMRT’s real estate to support network rollout and retailing of telecom services
•   We estimate 9.4% ROI for the new player based on 10% revenue share assumption in the fifth year
•   We estimate potential adverse impacts of 13-16%, 6-7% and 1% on group topline of M1, StarHub and SingTel respectively if 4th telco enters the market   



SMRT to beef up the case of 4th telco entry. 
SMRT and Consistel's joint venture OMGtel could benefit in two ways: (i) provide edge in speedy rollout of 4G network in Singapore using SMRT’s real estate, and (ii) drastically reduce the marketing costs required to acquire new customers as SMRT stations can serve as retail touch points. 

OMGtel (OMG) could have a big edge over MyRepublic due to a strong partner like SMRT, in our view. 60 MHz of 900 MHz spectrum expiring in March 2017 is likely to be up for sale this year or next.  

 

Our S$1bn capex assumption is on the higher side. 
M1 has spent S$280-300m in total for 4G capex over 2010-13 besides S$280-300m maintenance capex over the same period. Plus 900 MHz spectrum band is also more capex efficient than 1800 MHz and 2.6GHz bands so actual capex may be lower than our S$1bn assumption. 
 

SMRT
stock price 
(1
7 Apr 2015)

$1.69

52-week range

$1.015 – $1.815

PE (ttm)

28.9

Estimated P/E (3/2015)

27.2

Market cap

S$2.6 billion

Price/book

3.1

Dividend yield
Bloomberg data

1.6%

We estimate 9.4% ROI for OMG based on 10% revenue share. Assuming that OMG secures 10% revenue share in a 5-year time frame, it will translate into potential revenue of about S$470m for OMG in 2020.

Assuming 20% EBITDA margins (versus M1’s 40% with much bigger scale currently) it will translate into S$94m EBITDA for OMG.  This will translate into an ROI of 9.4% by the fifth year on an initial capex of S$1bn.

The challenge will be to obtain S$1bn of funding as SMRT has only committed up to S$34.5m in the form of an option currently. 

 

Potential impact from 4th telco entry – heaviest on M1
. In the case of a 4th telco entry, M1 could be most impacted due to its more price-sensitive customer base.  We estimate that 13-16%  of M1’s group topline is at risk in the long term. The adverse impact on StarHub and SingTel could be 6-7% and 1% of their group toplines respectively. 

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