Tuas’ Simba Roars Above Competitors

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From a humble demerger in June 2020, the Singapore based Tuas is putting some major runs on the board which is attracting the attention of both customers and investors.

-A lean cost model drives growth for Tuas
-The benchmark keeps on rising
-Mobile provides a launchpad for fibre broadband
-Profits here we come

By Danielle Ecuyer

TPG, Hutchison merger creates Tuas

Tuas ((TUA)) evolved from the merger between TPG Telecom (Australia) and Vodaphone Hutchison (Australia) In June 2020. The Singapore mobile business was de-merged from the TPG Group by transferring the shares from TPG Singapore to Tuas. Shareholders in TPG at the time received shares in Tuas.

Founder of TPG Australia and its CEO and executive chairman until June 2020, David Teoh is the executive chairman of Tuas.

The company operates Simba, its Singapore mobile business, and launched an additional broadband service in 2024.

Management’s proposition is to offer products that are attractive to consumers.

At the October 2023 annual report, Executive Chairman David Teoh stated

“We are offering 5G services at 4G prices to all of our subscribers. This reinforces are leadership as the best value mobile services provider in Singapore. We have also built up a fixed broadband capability that is being rolled out across the island.”

Citi sums up the value proposition for the company in the ability to sustain a “lean cost model” while generating consistently better-than-anticipated growth in subscribers, growth average revenue per user in conjunction with ramping up the broadband offering.

Since the 1Q21, Tuas has grown active mobile subscribers from under 200k to 1.05m at the end of FY24 (July year-end) with quarter-on-quarter growth exceeding 60% since 2Q24.

Correspondingly, market share of Singapore mobile subscribers has advanced to 11% in the latest results from 2% in 1Q21.

Looking out to FY25, Morgan Stanley expects mobile subscribers to grow to 1.24m compared to the broker’s forecast in January 2022 of 871.4k subscribers or an upgrade of 8% to 24% from FY22 to FY24.

Tuas is also punching above expectations for EBITDA margins with the broker lifting forecasts between 2bps to 14bps since coverage was initiated in January 2022. This translates into EBITDA upgrades of 9% to 44% over that period.

Growing from strength to strength

The latest FY24 results revealed what some commentators might start to describe as another predictable “beat and raise” on the back of mobile subscriber growth and margin expansion.

Is it any wonder Morgan Stanley described Tuas as “Simba: Disrupting with a Lionheart”. 

Citi compliments Tuas in the latest results on the growth in postpaid mobile subscribers which is exceeding the growth in prepaid. For Morgan Stanley the company’s value proposition is seemingly “resonating” with a broader reach of customers. With the growth in postpaid comes the potential for higher average revenue-per-user. Citi explains postpaid produces a customer base that is generally more loyal accompanied with more premium pricing. 

Around 75% of mobile users in Singapore are postpaid and the Citi analyst believes Simba could target these users with a more enticing price point. Tuas is aiming for 25% of the prepaid market.

The company’s S$12 mobile plan has been highlighted as one of the most popular.

Can Tuas replicate the Simba success in broadband?

With over one million mobile subscribers, brokers are upbeat on the potential for Tuas to expand its broadband reach.

Having only initiated the 10Gbps fibre broadband plan at S$29.99 per month in July, the company has already notched up over 4000 subscribers, well above Citi and Morgan Stanley’s forecasts.

The Tuas broadband plan is priced at discount of -50% to -60% to its peers while network performance is the same as for competitors. Alll the providers resell from the same network, the NetLink Trust which is led by the Singaporean government.

Morgan Stanley anticipates an EBITDA margin on this business of 39% with a 1.2-year payback on establishment costs. Citi expects the broadband take up could surprise to the upside given the price point proposition with an estimated total addressable market of around S$1.1bn.

Citi’s analyst points out Tuas’ strategic focus will be on residential customers. The residential market of up to 1.6m homes is over ten times bigger than the enterprise market and the company recently qualified for a S$100m grant.

In FY24 around -S$48m in capital expenditure was invested while positive cashflow of S$11m was generated. Morgan Stanley forecasts similar capex amounts over FY25-FY27 which as a percentage of sales will decline. Some of the capex will be used to support subscriber growth and expand Simba’s 5G coverage.

Net losses for Tuas have fallen to -S$4.4m in FY24 from a loss of -S$26.7m in FY22. EBITDA margins advanced to 42% in FY24 from 36% in FY23.

Management outlined for FY25 an ongoing push for “more broad-based mobile subscriber growth”; capex of between -S$45m to -S$55m and achieving a full year of positive net profits while advancing the 10Gbps residential fibre broadband momentum.

FNArena daily monitored brokers Citi and Morgan Stanley each have a Buy rating equivalent with a target price of $5.55 and $5.50, respectively, suggesting circa 14% upside from the current share price.

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