Share Price S$3.25
Target Price S$3.95
M1 is the second licensed telecommunications service operator in Singapore. It commenced commercial operations in Apr 97 with the launch of its GSM network. It began offering 3G services in Feb 05 and upgraded its 3G network to HSPA in Dec 06 to support wireless broadband services. M1 offers mobile and fixed-line customers IDD services using prefixes 002 and 021. It also sells international minutes to other international service providers on a wholesale basis.
• Upside from tiered data plans. We performed simulation to ascertain the impact of migration on tiered data plans and a planned increase in excess charges for data. Our study indicates that M1’s post-paid ARPU would increase 1.8% in 2013, 5.5% in 2014 and 8.3% in 2015. M1 is the largest beneficiary of the migration to tiered data plans as mobile accounted for 78.3% of service revenue in 2Q13.
• Evolving into a triple-play telco. M1 launched its new Internet TV service called MiBox in Jul 13. While it lacks crowd-pulling blockbuster content, MiBox cross-carries exclusive content, including Barclays Premier League matches. M1 will be able to cross-carry once it reaches the milestone of having 10,000 pay TV subscribers.
• A potential takeover target. M1 has a fragmented shareholding structure. Its largest shareholder, Axiata Group, owns a 29.0% stake, just a whisker away from the threshold of 30% that triggers a general offer. Other foreign telcos could acquire the two blocks of M1 shares from Keppel T&T and SPH, thus creating a tussle for control of M1.
• Re-iterate BUY. Our target price is S$3.95, based on DCF (required rate of return: 6.7%, terminal growth: 1.0%).
Publish date: 28/11/13