Why I believe that telco stocks are 2018 best picks?
1) Before government announced their intention of introducing the 4th MNO in 2015, avg telco PE 19. Currently in 2018, M1 and Starhub PE ratio is 11 while Singtel is at 13.22. This is a cheap PE ratio to pay for defensive stocks.
2) I am aware there are concerns that MNO revenue will continue to squeeze after TPG entry at the end of the year. I foresee that MNO revenue will continue to increase from:
a. Residential fibre broadband penetration rate since Singtel/Starhub will stop rolling out copper installation for new BTO flats. The current Residential Wired Broadband Household penetration is at 94.7%.
Every 1% penetration is equivalent to 14,208 new subscribers = 6.6 million in revenue (based on $39 plan).
b. Corporate Wired Broadband penetration will continue to increase.
c. Lastly, I believe telco future is about “moving data” and due to Singapore size, it is relatively easy to implement 5G compare to other countries. Once Singapore is 5G ready, we will see more initiatives which will further increase Telco revenue.
What is the upcoming initiatives? Satellite-based ERP, Smart metering, a couple more. For now, I suspect that within 5 years, government will roll out smart metering for all households.
What is my telco/network related pick for 2018:
$M1(B2F.SI) and $SingTel(Z74.SI) is in the better position to capitalize on smart initiatives. $StarHub(CC3.SI) unfortunately will continue to see its revenue affected due to pay tv and cable broadband.
$NetLink NBN Tr(CJLU.SI) will be the backbone for all initiatives and the revenue will continue increase with residential fibre penetration.