Telecom Sector Poised for Continued Growth in 2025: Analyst Report
Dated: 28 March 2025
Singapore Telecommunications Sector Update
The Singapore telecommunications sector delivered a solid 18% year-over-year earnings growth in 4Q24, meeting expectations, according to a new report from UOB Kay Hian. The analysts expect this momentum to continue into 2025, driven by several key factors:
Strong Regional Contributions and Cost Discipline
– The sector’s performance was driven by stronger contributions from Singtel’s regional associates, particularly Bharti Airtel and Advanced Info Service, as market conditions improved. – Singtel also benefited from better cost discipline through its ongoing cost-saving initiatives. – Starhub saw a 2% year-over-year earnings increase, while NetLink reported a 2% decline due to lower prices and higher operating expenses.
Positive Outlook for 1Q25
– The analysts expect decent earnings growth for the sector in 1Q25, backed by strong earnings visibility, continued cost-saving efforts, and a robust enterprise business outlook. – Key highlights for the first half of 2025 include: – Robust performance in enterprise businesses across the sector – Potentially higher-than-expected dividends from Singtel – Potential stake sales or divestments of Singtel’s regional associates – Upcoming 700MHz spectrum payments by Starhub and M1 – Increased contributions from Singtel’s regional associates and Optus
Maintain Overweight Stance
– The analysts maintain an Overweight recommendation on the sector, favoring telcos with regional exposure, such as Singtel, given the ongoing market repair across several regional markets and a persistently weak domestic market in Singapore. – Singtel remains the top pick due to its decent 5% dividend yield, potential value-unlocking initiatives, and improving business outlook in its regional markets. – For defensive earnings, the analysts like NetLink due to its sustainable earnings and projected 2025 dividend of around 6%.
Starhub: Muted Earnings in 2025, but Consolidation Potential
– Despite reaching the tail end of its DARE+ investment program in 1Q25, Starhub is expected to see better margins and significant earnings improvement only from 2026 onwards, due to ongoing legacy costs and higher amortization from the upcoming 700MHz spectrum payment. – The analysts believe Starhub could lead market consolidation in Singapore, with M1 as the likeliest acquisition target, given the existing capex and operating cost synergies.
Risks and Challenges
– Potential downside risks include weaker-than-expected domestic market performance as consumers continue to trade down to lower-value plans, and underperformance in the enterprise business due to uncertain macroeconomic conditions. – The analysts also note the risk of Simba Telecom’s continued low-price strategy after any potential market consolidation, which could prolong pricing competition.
Overall, the UOB Kay Hian report paints a positive outlook for the Singapore telecommunications sector in 2025, with Singtel and NetLink emerging as the top picks, while Starhub’s earnings may be muted in the near term but could benefit from industry consolidation.
