SingTel the most preferred stock pick among Singapore telcos

Cheapest price while offering highest yield.

According to Barclays, SingTel provides a great opportunity for investors with its cheap entry point -- the most affordable among the three Singapore telcos because of prevailing regional currency weakness -- while offering a very attractive yield rate in part due to improving rveenue growth trends.

Here's the complete investment analysis from Barclays:

The move to tiered data plans appears to be starting to impact in driving higher wireless data revenue growth. To what extent and for how long seems somewhat unclear. Mobile-centric M1 has the most to gain from this, in our view, but much is reflected at these levels – we maintain our EW rating and raise our PT to S$3.15 from S$2.65. We retain our UW rating on StarHub, due to challenging valuations amidst modest growth prospects, and raise our PT to S$3.50 from S$3.0. SingTel, our preferred pick, is the cheapest of the three and comes with the highest yield - weakness in the regional currencies is a challenge that drives good entry opportunities, in our view. We maintain our OW rating and SOTP-based PT of S$4.

Can small changes over time make a big difference? The move to tiered data pricing is starting to make itself felt in revenue growth trends, albeit in a small but positive way. If this continues, we could see some upside to our revenue growth estimates. Tiered pricing takes out network abusers; over time, we expect the cost benefits to reflect through in higher margins as well as capex efficiencies.

How can investors play this theme? Wireless-centric M1 (85% of revenues from mobile) has the most to gain from this relative to StarHub (55%) and SingTel (30%). We acknowledge the case for M1, but rich valuations have us rate it EW. Aside from rich valuations, we estimate 30% of StarHub’s revenues (cable TV and broadband) face structural headwinds, hence we rate it UW. We rate SingTel OW, but we see this theme more as a secondary rather than a primary driver to its share price, given its smaller relevance relative to SingTel’s regional asset portfolio.

Content strategies are becoming increasingly important, as operators look to optimize market shares into fibre broadband adoption in Singapore. We maintain that: 1) M1 has the most to win, but incremental earnings are unlikely to swing its earnings materially; and 2) StarHub has the most to lose, given its historical monopoly in cable TV in Singapore.

Our preference order – SingTel, M1, then StarHub: The largely defensive asset class tends to outperform market dips and underperform market rallies – this has not changed. The regional currency weaknesses are a challenge to SingTel and drive good entry opportunities into the stock, in our view, as fundamentals have not changed.

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