We like M1 because of the rapid take-up of tiered data plans which helps it monetise the surging usage of mobile data, strong growth in fixed broadband and a likely special dividend at end-FY13. Unlike its peers, M1 is unaffected by stiff competition in pay TV.
However, roaming revenues are under pressure due to declining usage of voice and data roaming and falling inter-operator termination rates. We expect a special DPS of 4 cts at end-FY13 given its low net debt/EBITDA of only 0.5x. Our call changes from Outperform to Add under our new rating structure. Likely re-rating catalysts are strong earnings growth and special dividend payouts. Our DCF-based target price is $4.10.
Monetising mobile data
Twelve months after the launch of tiered data plans, 32% of postpaid users have switched to these plans which cost 5% more on average. We expect the adoption rate to double to 60% by end-14. ARPUs are also bolstered by the move to higher tiers by 11% of subscribers who renew contracts. C.15% of these users exceed their data bundles and incur a penalty. Data usage is rising, spurred by higher speeds with the introduction of LTE and richer content available.
Fixed broadband, where M1 rides on the NGNBN, is a growth driver. Competing on price and bundling it with mobile broadband, M1 has been disrupting the market and challenging SingTel’s and Starhub’s dominance. Revenue contributions from fixed broadband have doubled yoy to 4.5% in 9M13.
Roamers hanging up
Roaming revenues, which contribute 12% of M1’s net revenues, are under pressure due to lower inter-operator termination (IOT) rates and fewer travellers using international data and voice roaming as they opt to buy prepaid cards or use free WiFi at their travel destinations. We expect this phenomenon to continue because of expensive roaming rates, readily-available prepaid SIM cards and the downward trend for IOT.
Special dividends likely
With net debt/EBITDA falling to a post-2007 low of 0.5x, we expect M1 to pay a special dividend of 4 Scts, in addition to an estimated final DPS of 8 Scts, taking the FY13 total to 19 Scts (103% payout). S$40m payment for its 2x20MHz of spectrum in the 2.5GHz band is due in Sep 14.
Publish date: 02/12/13