ANALYSTS SAY: Buy, Sell, Hold (17 March 2017)

Telecom Sector: Time for a switch

Singapore’s telecom sector ended 2016 with lacklustre earnings as only Singtel reported in-line 9MFY17 results while Starhub and M1 missed expectations for its FY16 results. All three telcos reported decline in EBITDA, mainly due to intensifying mobile business in Singapore, especially for the latter two telcos. Looking ahead, we believe with TPG expected to launch mobile services in CY18, competition within Singapore’s mobile industry is set to intensify as incumbents will likely take actions so as to gain market share during this period. We also expect TPG to start offering fibre broadband services before the launch of its mobile services. Consequently, we believe competition is set to heightened and forecast for average revenue per user (ARPU) to decline by 11-16% over the next five years. Hence, we downgrade M1 from HOLD to SELL with a lower FV of S$1.75, and maintain SELL on Starhub on lower FV of S$2.50. That said, we remain positive over Singtel’s longterm outlook given its growing presence in cyber security segment, and exposure to regional mobile associates. Hence, we reiterate Singtel as our top pick within the sector with a BUY rating with FV of S$4.25. Maintain NEUTRAL on the Telecom sector.

Offshore & Marine

Small/mid cap round-up: Stick to safe harbours

■ Maintain crude oil price forecasts of US$45-60/bbl for 2017F. Brent/WTI prices retraced to US$52/bbl/US$49/bbl in Mar 17 (2017 peaks: US$57bbl/US$54.4/bbl).

■ In our view, downside risks to valuations are low, as the industry is on better footing after two years of impairment exercises and with better FY17F crude price outlook.

■ Green shoots have emerged with oil and gas contract announcements by local companies in 1Q17. However, overall industry fundamentals are still challenging.

■ Stay Neutral, as industry uncertainties still act as counterweights to sector positives.

■ We prefer companies with healthy balance sheets that offer safe harbour amid sector volatilities. Our top pick is CSE Global.

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Singapore Airlines (SIA SP)

Strong Pax Loads Hold Scope For A Better 4QFY17

SIA’s pax load factor rose 2ppt yoy in Jan-Feb 17 while cargo loads also improved. This holds scope for a strong 4QFY17 and potential upward earnings revision, especially if the improvement in loads continues into March. In addition, we believe the odds of pax yields declining substantially from current levels are low. Should pax yields stabilise in 4QFY17, the stock will likely be re-rated upwards. Maintain HOLD. Target Price: S$10.40. Entry level: S$9.90.

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