Comprehensive Analysis of Telco Companies

Broker: CGS International

Date: November 13, 2024

Overview

The latest report by CGS International delves into the performance and future prospects of various integrated telecommunications companies in Singapore and the broader Southeast Asian region. This comprehensive analysis covers StarHub, along with its peers from Indonesia, Malaysia, the Philippines, Singapore, and Thailand.

StarHub: On Track for a Strong FY25F

StarHub’s performance in 3Q24 is commendable with a net profit growth of 11% year-on-year despite a revenue decline of 6% due to project timing issues. Excluding the impact from D’Crypt’s divestment, the net profit stood at S\$40 million. The company’s management remains optimistic about domestic industry consolidation and has reiterated its Add recommendation with an unchanged target price of S\$1.40.

Mobile Holding Up Well

StarHub’s 3Q24 mobile revenue was impacted by intense competition, with postpaid ARPU remaining flat quarter-on-quarter and declining 6% year-on-year. However, postpaid subscriber growth was strong, increasing by 4% quarter-on-quarter and 5% year-on-year. The company sees potential in capturing market share within lower-tier plans.

Managed Services Growing Strongly

The enterprise segment, particularly managed services, was a key revenue driver, growing by 25% year-on-year. The company has witnessed strong demand for digital transformation services and remains optimistic about future growth.

Transformation Benefits

With 90% of its Dare+ investments expected to conclude by the end of 2024, StarHub anticipates accelerated earnings growth from FY25F onwards. The company is well-positioned to reap the benefits of its capex-to-opex initiatives, such as cloud migration and decommissioning of legacy equipment. The management’s interest in mobile consolidation within Singapore is supported by a healthy net-debt-to-EBITDA ratio of 1.25x.

Financial Summary

StarHub’s financial outlook remains robust, with forecasts indicating steady revenue growth and improved EBITDA margins. The company expects net profit to exceed S\$200 million by FY27F. The dividend yield for FY24F and FY25F is projected at 6.3% and 6.7%, respectively.

Indonesian Telco Companies

Indosat (ISAT IJ)

Indosat is recommended as an Add with a target price of 2,670 and a market cap of US\$4,495 million. The company is expected to achieve a P/E ratio of 14.0x for CY24F and 12.4x for CY25F, with recurring ROE of 15.9% and 16.3%, respectively. The EV/EBITDA ratios stand at 4.5x for CY24F and 4.4x for CY25F, with a dividend yield of 3.2% for CY24F.

Telekomunikasi Indonesia (TLKM IJ)

Telekomunikasi Indonesia holds a Hold recommendation with a target price of 3,050 and a market cap of US\$16,192 million. The company is projected to have a P/E ratio of 10.2x for CY24F and 10.0x for CY25F, with recurring ROE of 18.1% and 17.3%, respectively. The EV/EBITDA ratios are 4.0x for CY24F and 3.8x for CY25F, with a dividend yield of 6.3% for CY24F.

XL Axiata (EXCL IJ)

XL Axiata is recommended as a Hold with a target price of 2,350 and a market cap of US\$1,788 million. The company is expected to have a P/E ratio of 15.5x for CY24F and 12.7x for CY25F, with recurring ROE of 6.8% and 7.9%, respectively. The EV/EBITDA ratios are 3.9x for CY24F and 3.8x for CY25F, with a dividend yield of 3.9% for CY24F.

Malaysian Telco Companies

Axiata Group (AXIATA MK)

Axiata Group is recommended as an Add with a target price of 3.67 and a market cap of US\$4,563 million. The company is projected to have a P/E ratio of 31.6x for CY24F and 17.3x for CY25F, with recurring ROE of 3.0% and 5.3%, respectively. The EV/EBITDA ratios are 3.7x for CY24F and 3.5x for CY25F, with a dividend yield of 4.5% for CY24F.

CelcomDigi Bhd (CDB MK)

CelcomDigi Bhd holds an Add recommendation with a target price of 4.50 and a market cap of US\$8,600 million. The company is expected to achieve a P/E ratio of 25.1x for CY24F and 15.5x for CY25F, with recurring ROE of 9.2% and 15.0%, respectively. The EV/EBITDA ratios stand at 8.7x for CY24F and 7.7x for CY25F, with a dividend yield of 4.0% for CY24F.

Maxis Berhad (MAXIS MK)

Maxis Berhad is recommended as an Add with a target price of 3.90 and a market cap of US\$6,394 million. The company is projected to have a P/E ratio of 20.7x for CY24F and 20.2x for CY25F, with recurring ROE of 23.2% and 23.9%, respectively. The EV/EBITDA ratios are 9.1x for CY24F and 8.8x for CY25F, with a dividend yield of 4.8% for CY24F.

Telekom Malaysia (T MK)

Telekom Malaysia holds an Add recommendation with a target price of 8.60 and a market cap of US\$5,523 million. The company is expected to have a P/E ratio of 14.5x for CY24F and 12.8x for CY25F, with recurring ROE of 17.0% and 18.3%, respectively. The EV/EBITDA ratios are 5.8x for CY24F and 5.2x for CY25F, with a dividend yield of 4.1% for CY24F.

Philippine Telco Companies

Globe Telecom Inc (GLO PM)

Globe Telecom Inc is currently not rated. The company is projected to have a P/E ratio of 13.6x for CY24F and 12.5x for CY25F, with recurring ROE of 14.7% and 14.5%, respectively. The EV/EBITDA ratios stand at 7.4x for CY24F and 7.0x for CY25F, with a dividend yield of 4.9% for CY24F.

PLDT Inc (TEL PM)

PLDT Inc holds an Add recommendation with a target price of 1,500 and a market cap of US\$4,911 million. The company is expected to achieve a P/E ratio of 8.2x for CY24F and 7.5x for CY25F, with recurring ROE of 29.6% and 28.4%, respectively. The EV/EBITDA ratios are 4.9x for CY24F and 4.8x for CY25F, with a dividend yield of 7.0% for CY24F.

Singaporean Telco Companies

SingTel (ST SP)

SingTel holds an Add recommendation with a target price of 3.70 and a market cap of US\$39,400 million. The company is projected to have a P/E ratio of 21.7x for CY24F and 18.8x for CY25F, with recurring ROE of 9.7% and 11.2%, respectively. The EV/EBITDA ratios stand at 11.9x for CY24F and 11.3x for CY25F, with a dividend yield of 5.1% for CY24F.

StarHub (STH SP)

StarHub holds an Add recommendation with a target price of S\$1.40 and a market cap of US\$1,529 million. The company is expected to achieve a P/E ratio of 12.9x for CY24F and 11.4x for CY25F, with recurring ROE of 27.4% and 29.2%, respectively. The EV/EBITDA ratios are 6.1x for CY24F and 5.6x for CY25F, with a dividend yield of 6.3% for CY24F.

Thai Telco Companies

Advanced Info Service (ADVANC TB)

Advanced Info Service holds an Add recommendation with a target price of 282 and a market cap of US\$24,528 million. The company is projected to have a P/E ratio of 27.2x for CY24F and 24.0x for CY25F, with recurring ROE of 33.5% and 37.1%, respectively. The EV/EBITDA ratios stand at 9.7x for CY24F and 8.7x for CY25F, with a dividend yield of 3.3% for CY24F.

True Corporation (TRUE TB)

True Corporation holds a Hold recommendation with a target price of 12.70 and a market cap of US\$11,956 million. The company is expected to have a P/E ratio of 43.7x for CY25F, with recurring ROE of 11.3%. The EV/EBITDA ratios are 8.0x for CY24F and 7.7x for CY25F, with no dividend yield projected for CY24F.

Conclusion

This comprehensive analysis underscores the varied performance and future prospects of leading telcos in the Southeast Asian region. StarHub, in particular, shows promise with its transformation initiatives and industry consolidation efforts. Investors should consider the detailed financial metrics and recommendations provided for each company to make informed decisions.