For 2009, we believe safety lies in market dominance, competitive leadership and balance-sheet quality rather than just dividend yield. This drives our choice of SingTel (Buy) as preferred pick vs the yield plays i.e StarHub and M1. SingTel is trading at comparable PE multiples to StarHub & M1; we see better relative value given strong LT prospects in S’pore as well as upside from SingTel Associates.

Relative to consensus we are cautious on StarHub and M1 despite their attractive yield. In the short term we see event risk around the EPL bid in 2H09 for StarHub. Continued market share erosion and potentially disappointing 2009 guidance make M1 appear vulnerable. Also, both StarHub and M1 may find post-NBN outlook challenging; note that post-2012 cashflows drive 70-90% of DCF for Sing telcos. We think SingTel will become even more dominant in Singapore post-NBN.

Singapore’s relatively open economy exposes telco revenues to the risk of 1% contraction, led by cutback in corporate spending and reversal of foreign worker influx. EBITDA contraction is forecast to be similar but companies have different latitude with discretionary (SG&A) costs. SingTel has the strongest potential to cut SG&A while M1 and StarHub have lower room to navigate in 2009.

Increased focus on cost management by SingTel, the dominant price-setter, sets the stage for stabilization of margins in 2009E. We expect EBITDA margins for Singapore telcos to remain stable YoY at ~36%.

The NBN OpCo bids have been submitted and a decision is expected in 1Q 09. Potential loss of the OpCo bid could be -ve for SingTel due to emergence of new competition in the wholesaling business. Winning OpCo could delay margin pressure; also there may be cushion from OpCo subsidy & NetCo revenues.

Slower top-line growth and stabilizing competition will likely be the key theme for upcoming Oct-Dec results. Our earnings forecasts are in line with consensus for SingTel (0% QoQ, -16% YoY) but below consensus for StarHub (-2% QoQ, -21% YoY) and M1 (-6% QoQ, -15% YoY). Focus will be on guidance for 2009 by StarHub and M1. We note that we think M1’s guidance could disappoint.