Brokers' take

Compiled by Melissa Tan,
The Business Times

SINGAPORE TELCOS

DBS Group Research, Dec 15

TPG Telecom made the winning bid of S$105 million and will be allocated 60MHz of spectrum. The new spectrum rights will commence on April 1, 2017.

We project the fourth player to gain 8.5 per cent mobile revenue share by 2022 versus 7 per cent earlier. It has enough capacity to install a nationwide mobile network. TPG, with an annual Ebitda of A$770-775 million and FY16 (July year-end) net debt-to-Ebitda at 1.6x, has enough room to raise over $500 million to $1 billion required to roll out a mobile network.

We project TPG to secure 8.5 per cent revenue share by 2022.

Maintain fully valued on StarHub (target price $2.65, previously $2.80) & M1 (target price $1.78, previously $1.97).

We project StarHub's & M1's earnings to contract by 25 per cent and 41 per cent respectively in FY22 versus FY15 due to higher revenue share loss. Under our bull-case and bear-case scenarios for the existing telcos, we project TPG to secure 6 per cent and 10 per cent revenue share respectively. Even under our bull-case TP of $3.02 for StarHub and $2.10 for M1, the stocks offer limited upside potential.

Our bear case TP is $2.56 for StarHub and $1.65 for M1.

SEMBCORP INDUSTRIES | BUY

TARGET PRICE: $3.20
DEC 15 CLOSE: $2.93

UOB Kay Hian, Dec 14

Sembcorp Industries' (SCI) utilities earnings are expected to shine in 2017, led by its power business. On an effective capacity basis (gross capacity multiplied by equity stake), we expect capacity growth of 28 per cent yoy for 2017, higher than the 3 per cent expected for 2016.

Group utilities earnings growth is largely to be driven by better earnings from India (+267 per cent) in 2017. Central to this earnings growth is Thermal Powertech Corporation India's Unit 2 which will move beyond its first year of teething issues and enter a phase of steady operations. Offsetting this growth is an estimated 14 per cent decline in earnings from China.

SCI's non-marine segment currently trades at an implied 9.3x 2017F PE, a 23 per cent discount to the sector mean.

The share price was driven more by the rise in SembMarine's share price, rather than better appreciation of the utilities' earnings potential.

We think hesitation stems from the uncertainty surrounding its India operations.

Our target price is based on SOTP, with the utilities segment priced at a blended 9.8x 2017F PE, based on the respective countries' sector mean. SembMarine is valued at its fair value of $1.40 a share. Despite the 7.4 per cent upside to our fair value, we maintain our buy rating as SCI's share price likely rose due to volatility in SembMarine's share price than a fundamental appreciation of the utilities business' earnings potential.

Disclaimer: All analyses, recommendations and other information herein are published for general information. Readers should not rely solely on the information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.