Why M1 overtook SingTel as PhillipCapital's most preferred telco stock

M1 now holds 2 important advantages.

Research analyst PhillipCapital has named M1 as its most preferred stock in the telco sector, favoring it over previous favorite SingTel for two reasons.

"We like M1 over SingTel and StarHub as M1 stands to gain the most from improving mobile dynamics in Singapore," said PhillipCapital analyst Colin Tan. Second, M1 also "benefits from growth in its Fibre broadband," added Tan.

"Mobile accounts for a higher revenue proportion for M1, compared to its peers. With its fibre broadband offering, M1 continues to grow its fixed services revenue. Adverse FX movements continue to have a negative impact on SingTel’s earnings. However, SingTel’s earnings remained stable y-y in the last quarter due to effective cost
management strategy," Tan said further.

For its broader telco outlook, Tan expressed a cautiously positive outlook on the sector's stocks on the back of attractive dividend yields and stable earnings growth.

"We see data monetising gaining good traction in Singapore and expect it to continue into FY2014. More subscribers have subscribed to 4G tiered plans and are increasingly exceeding their data allowances," said Tan.

Tan cited SingTel and M1 reporting improvements in EBITDA margin on service revenue while EBITDA margin for StarHub remained stable in the last quarter. Earnings growth was stable across the three Telcos in the current FY.

"Despite expectations of the Fed tapering in the near term, we think the Telcos continue to be attractive investments, providing earnings as well as dividend growth potentials," Tan concluded.