Singapore telecoms sector looking at muted revenue growth in 2014

Saturation point is close at hand.

OCBC Investment Research has sounded off the alarm that Singapore telecom firms will only achieve lukewarm revenue growth in 2014 given the already high mobile penetration rate in the country. One bright spot though is the expected ARPU rebound from broadband prices hitting a floor.

"We believe that mobile revenue growth is likely to remain modest, driven mainly by ARPU uplifts as the telcos migrate more existing subscribers to the tiered pricing plans with more restricted data bundles," the research firm said.

Here's the complete telecoms sector analysis from OCBC:

Very modest mobile growth likely. As the mobile penetration rate has already hit some 156% in Oct, we suspect that the market here is fast approaching saturation point, with demand coming from LTE-enabled tablets. As such, we believe that mobile revenue growth is likely to remain modest, driven mainly by ARPU uplifts as the telcos migrate more existing subscribers to the tiered pricing plans with more restricted data bundles.

Broadband getting very competitive. The opening up of the broadband market has resulted in increased competition, with many new players trying to garner market share via low pricing strategies. With the exception of M1, both SingTel and StarHub have started to see some ARPU erosion; but they believe that prices will reach a floor soon, given the structure of the NBN. Separately, we understand that the corporate take-up rate continues to remain quite slow for M1 and StarHub.

Pay TV market may shift in StarHub’s favour. Lastly, for Pay TV, the MDA has mandated SingTel to cross-carriage the 2013-2015 Barclays Premier League (BPL) content on StarHub’s platform. This initially sparked off a series of rebates among the two providers, with StarHub offering up to S$600. Latest change by SingTel to move all subscribers to its S$59.90 pricing could see another migration of subscribers back to StarHub.

Yields are just decent. With the US economic recovery slowly but surely picking up steam, the market is increasingly of the view that global interest rates will rise; although latest Fed stance remains somewhat accommodative.

Nevertheless, we note that the recent share. price rallies have dropped dividend yields to around 4.5%, making them just decent. As such, we maintain our NEUTRAL rating on the sector.