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Time for investors to switch out from StarHub into Singtel, says OCBC By: “Looking ahead, the telecom sector will remain under pressure with the entry of two new Mobile Virtual Network Operators (MVNOs) as well as the impending entry of TPG,” says Chua. “In a saturated market, we expect mobile ARPUs and broadband ARPUs to decline ahead, translating to weaker service revenue for the telcos. Consequently, while correction of the share prices of the three telcos started since mid-CY16, we believe valuations do not accurately reflect the fundamental outlook of Singtel and StarHub,” he adds. While StarHub’s forward dividend yield is trading at 1.3sd above the five-year average, Chua says he is currently unconvinced of the telco’s ability to sustain its 4 cents per quarter dividend beyond FY18. In contrast, he remains positive on Singtel’s longer-term outlook given its focus on growing its cyber security, ICT solutions capabilities, digital advertising and other digital-related businesses. The analyst further highlights Singtel as the dominant telco in Singapore and also one with the most diversified earnings base. At its last closing price of $3.38, the stock also trading at P/E and EV/EBITDA at 1.9sd below and 1.5sd below their 5-year averages, respectively. “This disparity in valuations between Singtel and StarHub is tremendously unjustifiable, especially since Singtel has the more resilient earnings outlook, in our view,” comments Chua.
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