Singtel and Starhub win 5G licences: what's the stock outlook?

The Infocomm Media Development Authority (IMDA) on Wednesday 29 April 2020 awarded 5G network operating licences to Singtel Mobile Singapore (Singtel) and the joint venture consortium formed by StarHub Mobile (StarHub) and M1.

Singtel and StarHub shares are both up 2.3% and 4.2% respectively since the announcement was made. As at 15:30 SGT on Thursday 30 April 2020, Singtel stocks are trading at S$2.83 apiece while StarHub stocks are trading at S$1.49 a share.

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When will Singapore's 5G network commence?

As part of the provisional 5G ‘standalone network’ licences – pending their completion of regulatory processes, Singtel and StarHub-M1 will then be allocated radio frequency spectrum to deploy nationwide 5G networks from January 2021.

Both entities will be required to provide coverage for at least half of Singapore by end-2022, scaling up to nationwide coverage by end 2025.

Other mobile operators can access these network services through a wholesale arrangement.

Additionally, IMDA will allocate mmWave spectrum to mobile network operators to deploy localised high-capacity 5G hotspots. With this, M1, StarHub, Singtel, TPG Telecom and mobile virtual network operators would be able to offer retail 5G services to end users.

With the standalone network, telcos will be able to offer network slicing, ultra-reliable low latency communications and machine-type communications, according to experts.

Where next for Singtel and Starhub share prices?

Analysts from RHB Bank say they see ‘only incremental contributions’ from the 5G spectrum offerings by both networks. They rated the Singtel stock a ‘buy’ alongside a 12-month share price target for S$3.30 per share, and gave the StarHub stock a ‘neutral’ rating and share price target of S$1.63.

‘We see the initial demand for 5G to be largely in the enterprise space where trials of multiple use cases across various industry verticals are already at an advanced stage,’ the analysts wrote in a note.

On the other hand, the consumer market is likely to see a more gradual pick-up in 5G adoption, given ‘the lack of a critical mass of applications coupled with the already high fibre penetration in the country’, they added.

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Yet, they noted that while the telcos have yet to provide guidance regarding their 5G capital expenditure (capex), they envision that a more pragmatic and prudent approach on spending will be taken by both Singtel and StarHub-M1 with the industry more mindful of return-on-investments and monetisation amid the coronavirus pandemic.

Finally, they stated that the sharing of active 5G infrastructure between StarHub and M1 would also result in capex savings of up to 30%.

Potential downsides with 5G arrangements between telcos

OCBC analysts said the outcome of the bids was ‘not surprising’, naming Singtel as its ‘preferred’ stock.

While they believe the licences are a ‘net positive for the winners of the 5G bid’, they also cautioned that with commercial 4G arrangements in the market, there would be lengthy appeal processes involving the regulator should operators not come to an agreement regarding 5G arrangements.

Undercutting would also become more challenging with TPG Telecom Singapore having to secure wholesale 5G services from one of the two winners.

OCBC has given the Singtel stock a ‘buy’ rating and 12-month share price target of S$3.61 per share.

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