Analysts getting more cautious on SingTel's attractiveness to investors

Risks are lurking somewhere.

According to Maybank Kim Eng, they met 13 clients last week in Kuala Lumpur on a joint Malaysia/ Singapore telcos marketing trip.

Here's what they gleaned from the meeting: 

We argued that M1 has the capacity to pay more special dividends as there is room for earnings surprises, given (1) the acceleration in adoption of tiered data subscriptions, and (2) its high percentage of heavy data users that are likely to upgrade their plans on expiry of the old contracts.

In the case of StarHub, we argued that investors should continue to like it as it too has the capacity to pay more dividends given its healthy balance sheet.

Our more cautious view on SingTel resonated with clients. We contended that they would be better off buying directly into SingTel’s listed associates, such as Bharti, for a recovery in their home markets than buying indirectly through SingTel given the risk of potential corporate actions diminishing the rewards, eg, the talk about the sale of Shin Corp stake by Temasek Holdings to SingTel.

We also believe clients appreciated our comprehensive discussion of the longer-term prognosis for the telcos, given declining voice/SMS revenue amid the threat from OTT.

Most agreed that new services such as HD voice and joyn (Rich Communication Services) are just pieces of a larger puzzle that needs time to be put together.

Longer term, the telcos still need to (1) take advantage of the changes in technology, such as Voice over LTE, to provide an alternative to the OTT services, and (2) reinvent themselves as solution or content providers instead of being just connectivity pipe providers.