SG Telco: CIMB upgrades telco sector to O/w from Neutral and believe it is time to re-visit the relative safety of telcos amid market turmoil and as house turn more bearish on the mkt. Telcos offer fairly stable earnings and attractive div yields of about 7% which are backed by FCFE yields of 6-8% and fairly low net debt/EBITDA.
Upgrade StarHub to O/p from Neutral with unchanged TP of $3.03 on stabilising margins and slower than-expected competition from NGNBN. Likely re-rating catalysts are economic uncertainties and div announcements. Also upgrade SingTel to O/p from Neutral because of its recent de-rating and an improving outlook for its key units. M1 remains a NEUTRAL as it lacks catalysts but downside should be supported by its attractive yields of 6-7%.
Key risks to our calls are a more competitive environment, margin pressure, investors’ shifting preference for cyclicals once economies stabilise, any further erosion in fixed broadband/pay TV and in the longer term, the ongoing substitution of voice by data and slowing population growth.
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