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Singapore telco shares fall on concerns about worsening business conditions

SINGAPORE (NewsRise) -- Shares of Singapore telecommunication companies StarHub Ltd. and M1 Ltd. tumbled on Wednesday after the latter's results indicated a further deterioration in local business conditions.

M1, the smallest of Singapore's three mobile phone operators, counts Malaysia's Axiata Group Bhd. and Singapore's Keppel Corporation as its largest shareholders.

Late Tuesday, the company reported a 27% drop in fourth quarter net profit to 31.8 million Singapore dollars ($22.6 million), hurt by lower revenue from international calls and a decrease in phone usage by existing customers. The company also slashed its dividend by nearly 30% to 5.9 Singapore cents a share from 8.3 Singapore cents a share.

M1 shares closed 5.5% lower at S$2.05 on Wednesday while StarHub, which is due to report fourth quarter earnings on Feb. 3, fell 4.5% to S$2.96. By contrast, shares of Singapore Telecommunications (Singtel), the number one player with operations in many other countries, rose 0.5% to S$3.86.

RHB Securities said M1's core, or recurring, earnings, which it estimates at S$31.6 million for the quarter, are at their lowest since 2012 and could fall between 19% and 28% over the next three years as a result of increased competition from yet another player in the local mobile market.

Australia's TPG Telecom, which obtained the fourth license, is set to enter the Singapore market by September next year. The city-state already enjoys high smartphone and mobile broadband penetration rates of more than 100%, and analysts say future growth will have to come from increased data usage by customers here.

Of Singapore's three existing telecom operators, M1 is the most dependent on mobile phone revenue from local users. StarHub, the second largest, also offers cable TV services although mobile makes the biggest contribution to revenue. In November, StarHub reported a 27.6% drop in net profit for the third quarter.

M1's mobile service revenue has contracted for the past seven quarters, RHB Securities said in a note to clients, citing the growing popularity of over-the-top services such as WhatsApp that have eaten into earnings from international calls and roaming services.

"The structural pressure on roaming revenue is a widespread industry phenomenon," RHB Securities said.

Unlike StarHub and M1, which depend almost entirely on the local market, Singtel owns Australia's second largest telco, Optus, and has large stakes in regional mobile operators such as Bharti Airtel in India and Advanced Info Service (AIS) in Thailand.

M1 said on Tuesday it plans to capitalize on new opportunities in the digital economy such as solutions for smart nation and Internet of Thing services to make up for falling IDD and roaming revenue.

Besides seeking opportunities in the digital economy, M1 and StarHub have also taken steps to reduce costs.

The two companies earlier this month signed a memorandum of understanding to collaborate further in shared mobile infrastructure with a focus on radio access networks.

--Kevin Lim

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