SG Telco

SG Telco: In what is seen as a disappointment to Singtel and Yoma, Myanmar has appointed Norway's Telenor and Qatar Telecom to become Myanmar's first foreign telecommunications operators, as the 2 co’s clinched the country’s hotly contested licenses to develop its nascent but potentially lucrative telecommunications industry. France Telecom which partnered Japan's Marubeni for its bid, has been named as a back-up candidate, and would replace Telenor or Qatar Telecom if either co fails to meet certain post-tender requirements. Interesting to note however is that none of these 3 companies had any tie ups / alliance with a local partner, which was previously touted as critical in increasing a consortium’s chances of winning the contracts by market watchers. While most analysts expect a near-term negative reaction in response to the news, most are seeing limited impact to the group’s fundamentals, with some touting that not winning the bid was a ‘blessing in disguise’. Maybank-KE note that SingTel did not this is not a bad outcome as a win would have meant billions of dollars of investment, an opaque regulatory environment and more short-term losses. Instead, Singtel can now focus on getting opportunities to clinch sub-contracts from the winners who will be under great pressure to deliver active services in 9 mths’ time, 25% mobile coverage in a year and 80% coverage within 5 years. Deutsche similarly note that Singtel’s Myanmar loss may be a blessing in disguise. House note that even in an optimistic scenario of 50-60% penetration and US$3-4 mobile ARPU within 5 yrs, a Myanmar mobile venture could be loss-making for at least 5-6 years. Meaningful earnings accretion may materialize only towards the end of the 15-year licence period. Believe the Myanmar venture would have at best been marginally accretive to SingTel’s EV, but more likely mildly dilutive. Seperately, we note that smaller players which are involved in the build up / support of Telco networks and infrastructures could benefit from an increased in capital expenditure as the country ramps up its network coverage. Notable SGX companies with an exposure / expertise in this segment in Myanmar includes Ntegrator, MDR and Neratel, which should benefit positively from the latest news.