Telecoms: Brunei's DST Communications backs potential 4th entrant MyRepublic
The telecom sector took a hit today on news that Brunei's largest telco, Malaysian-owned DST Communications invested in potential fourth entrant MyRepublic.
Incumbents SingTel dropped 4.1%, M1 1.4% and StarHub lost 2.0%.
Over the weekend, MyRepublic, which is gunning to be the fourth mobile operator in Singapore, secured a US$16m ($23m) investment from the Bruneian telco to fund its upcoming Mobility Trial service next month.
This has brought the total amount of funding to US$43.6m. Other investors backing MyRepublic include Indonesia’s giant conglomerate Sinar Mas and French billionaire Xavier Niel, who founded mobile and internet services provider Free in France.
The company is exploring small cell LTE technology, which uses small units that allow for better coverage in enclosed spaces and moving vehicles. Owing to its shorter reach compared to traditional base towers, the capex requirements are significant in order to provide nation-wide coverage.
Maybank-KE believes the risk-reward profile in the sector is not appealing currently, weighed by several factors that will impact its performance going forward. These include:
1) The timing of the Fed raising interest rates and the spread between telco’s dividend yields and long-term government bond yields
2) Global macro concerns like the Greece bailout programme
3) China stock market rout and the strength of the US economy
The house has maintained a Neutral call on the local telco sector and keeps StarHub (TP: $5) as its sole Buy in the sector, with M1 (TP: $3.65) and Singtel (TP: $4.50) on Hold.