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Buy M1, Starhub Over SingTel: Analyst

In times of financial market volatility, utilities such as telecom firms are generally perceived as safe haven plays for investors. This has been true for the sector in Singapore, where all three telecom service providers have outperformed the broader market.

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Shares of the nation’s biggest telco Singapore Telecommunications (SingTel)have gained 1 percent so far this year, while shares of rivals Starhub and Mobile One (M1) have added about 8 percent each. The nation’s benchmark STI meanwhile, has slumped 14 percent in the same period.

While SingTel may enjoy the largest market share at 50 percent, Carey Wong, Research Manager at OCBC Investment Research says its exposure to markets abroad makes it vulnerable to the external environment.

"SingTel, although it has regional associates, what happens is there's increased volatility, especially in terms of the forex," Wong said, referring that the recent strength in the Singapore dollar has eroded overseas profits for the telco.

The telco also faces headwinds due to its investments abroad – particularly Bharti Airtel in India - which it has been struggling to turn around, he adds.

"Our top picks are StarHub and M1 for their yields and relatively stable earnings as both of them are solely based in Singapore," Wong said.

Both firms are also attractive investments because of their lucrative dividend yields. Starhub provides the highest dividend yield — at 7.4 percent, compared to M1 at 5.8 percent and SingTel at 5.7 percent.

Wong is overweight on the sector with a buy rating for all three telcos with a fair price value of S$2.79 for M1, S$3.01 for Starhub, and S$3.64 on SingTel.

Despite Singapore’s high mobile penetration of 150 percent, or an average 1.5 active mobile phone numbers for each subscriber, according to data from the government, Wong believes there is still room for growth, fueled by the fast-growing demand for tablet PCs.

"Throw in the tablets, you could easily hit 2x (mobile penetration) and above," he said.

Plus things were likely to look even more positive for the local scene in the next 2 years as Singapore rolls out its Next Generation National Broadband Network (NBN) which will offer faster connectivity throughout the island. Wong believes M1 has the most potential to benefit from this.

Correction: A previous version of the story had a line that incorrectly stated Starhub's dividend yield as 5.8 percent. That should have been Mobile One's yield. Starhub's yield is, in fact, 7.4 percent.

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