Golden boy no more: Analysts downgrade local telcos on back of dimming earnings outlook

Valuations have become unpalatable.

Telcos were once the epitome of affordable valuations and high returns, but that golden time may well be a thing of the past. CIMB downgraded the local telco sector on back of unpalatable valuations and limited growth potential.

 “From a country strategist perspective, we previously upgraded telcos in 2Q14 when Singapore corporate earnings trend started to turn sour and telcos were becoming a play on the recovery of pricing power. We opt to downgrade telcos, now that the other sectors (capital goods, commodities and consumer) all have underperformed vastly, after having their respective problems show up,” noted CIMB.

CIMB further stated that telcos are the only sector above +1 s.d. valuations in Singapore.

“Our analyst, Foong Choong Chen, likes SingTel best, expecting associate earnings to be the bright sparks, led by Telkomsel and Bharti. Optus is set for stronger growth in FY16-17, armed with a new 4G 700MHz network. Singapore‟s mobile revenue growth should help to offset pressure in the enterprise business and Digital Life losses. He does not like Starhub, believing that it will continue to experience pressure in its broadband business and limited growth prospects in its pay TV business,” stated CIMB.