TPG Telecom Singapore's next 5 years (TUA)

Those who followed David Teoh and Robert Miller from the early days of TPG Australia would know that they together control around 60% of TPG-AU and kept buying more when the shares were around 10/20/50 cents 12 years ago and never sold a share until last week when Teoh sold 20% of his holding. They together drove the value of TPG-AU from a few hundred millions market cap to a high of $10 billion in 2016 (from 10 cents to a high of $12.50 in just 8 years) before government's NBN disrupt the party.

With a combined 60+ years of experience running a telco in Australia, now they are attempting to repeat the feast in Singapore. On the surface it look like trying to climb Mt.Everest given Singapore with a population of just 5.5 million people and TPG would be the 4th MNO in Singapore (SIngtel/Starhub/M1), and here in Australia TPG took ACCC to court to argue that they can't built a 4th mobile network profitably with 25 million people. This is the reason why a lot of investors dumped TUA stocks after listing last year driving shares to lows of 50/60 cents even though equity backing of TUA is around $1.15/share and both guys scooped up more TUA at these low prices last year.

The reasons I think TUA will continue to take market share and keep growing revenue and earning in the next few years are below:

1. TUA built and owned it's network (4G/5G/6G) , control it's destiny, not beholden to other telco's wholesale prices like Telstra or NBN in Australia for home broadband.

2. TUA's current deals ($10/100GB & $18/130GB) are super cheap compared to other offers because it is a network owner/retailer rolls into one. It's cost base are cheaper than other with just a few shops around Singapore and everything else is online. Telco cost are majority fixed with up-front cost made up mainly of spectrum and network equipment. It's like a motor way, once it's built, the first certain number of cars will make it profit break-even and then all the toll after that will go straight to the bottom line. Given TUA have now captured just 4.5% market share and is already $15M EBITDA (annualised) positive at 30% EBITDA margin, it's quite conceivable that this margin will be in the 60/70% range when they capture 20% market share in the next 3/5 years.

3. Asian people are generally hard working, hard saving people, they like bargains. We Aussie earned $100 but spent $110 whereas they saved $30. Look around next time you go to Costco stores, customers are mainly Asian and Indian because you save a lot by buying in bulk.

4. Like Australia, TUA competes in the low end, value sector of the mobile market so its targets are mainly low income customers, migrant workers in Singapore like Indian, Bangladeshi, Philippinos, tourists, oversea students...etc and because of COVID, these cohorts completely disappeared from the market in the last 2 years. This was reflected in the number of new sign-up for November with 17k since Singapore re-opened it's border again last month. (average 8.6k per month for August to October due to Delta).

5. Singapore NBN (Home and SME Business broadband) retailer's EBITDA margin is quite healthy at around 30%, so soon or later TUA will move into this area. Covid slow everything down in last 2 years so they just focus on building their 4G mobile network first to meet the regulator deadline and easily upgrade to 5G next year using Huawei gear. We all know that Huawei is at least a year or 2 ahead of Nokia and Ericsson in term of technology. Huawei already built 1 million 5G base stations in China so they have a lot of knowledge and experience to share. TUA will introduce bundle home broadband with mobile and TV packages like Australia to help customer save more.

7. With the 2.1Ghz spectrum acquired last week, this will enable TUA to build it's own 5G Stand Alone (SA) network. 4G/5G NSA is fast enough for the everyday consumer usage but 5G SA offer Edge computing, Network slicicng and will be mainly for commercial and industrial usage like Autonomus vehicles, Smart Cities, 5G Drone, IoT, Metaverse, Smart factories, Manufacturing, AI, Robotic.....etc

8. Think for a minute, for the 2 old/wise billionaires spending $500+ million to set up a company in a foreign country with all the risks involved, it's not worth it if they don't see the opportunity to make their money multiplied at least 5/10 times. They are very long term investors.

9. Teoh just cashed out $355M last week from TPG-AU but I don't think he will privatise TUA because he could have done this a lot cheaper 4/5 months ago.

10. This journey just started for TUA as it was the same for TPG-AU 13 years ago. It's like going to a buffet but so far only 1 dish is served. TUA will bring more services to the market like..Home Broadband, 4G/5G Fixed Wireless, 5G mobile, TV packages, Business broadband + 5G solutions..etc. They have done this successfully in Australia and they will do again in Singapore.

11. Management said they are just concentrating on Singapore for now but their acquisition track records indicate otherwise, the opportunities to acquire other telcos, bolt-on businesses in the region are not out of the question since Teoh and Miller are flushed with cash. Teoh himself is from Malaysia and migrated to Australia in his late 20s so he obviously know the region well.

12. Oh, when Teoh forcast for example EBITDA for this year is around $20M, you can be sure that it will be $22/$25M, always under-promise and over-deliver.

This is my own view of TUA, not advices. Please do your own research.

Howie