M1 - Fourth player concerns reduced by network sharing
- M1 and StarHub announce agreement to expand network sharing.
- Significant capex and opex reductions; reduce capex by 20% from FY18 for M1.
- Upgrade to HOLD with revised TP of S$ 2.09.
We project new entrant TPG to gain 8.5% mobile revenue share by 2022
- With an annual EBITDA of A$775m and FY16 (July year-end) net debt-to-EBITDA of 1.6x, TPG has enough capital to roll out a nationwide mobile network. Hence, we believe the impact on the incumbents from the entry of TPG to be acute, and project TPG to secure 8.5% revenue share by 2022.
- In our bull-case and bear case scenarios for M1, we project TPG to secure 6% and 10% revenue share respectively.
We reduce M1’s capex by 20% from FY18 onwards due to network sharing.
- M1 and StarHub have signed a Memorandum of Understanding (MOU) for collaboration in mobile infrastructure sharing, with a focus on sharing radio access network (RAN), backhaul and access assets.
- Given the considerable synergies, especially in capital expenditure, we believe network capex of M1 could reduce by 20% post FY18, as the network sharing takes hold.
M1 most impacted from the entry of a fourth operator.
- We believe the potential entry of a new player will be most felt by M1 due to its higher exposure to mobile revenue and a more price-sensitive subscriber base. We project M1’s mobile revenue share to contract from 18% at present to 14%, down from 15% in our previous estimates.
- Further, we expect M1’s earnings to contract by 38% by 2022 from 2015 levels, compared to the 31% drop we previously expected.
- Upgrade to HOLD with a higher TP.
- Our revised DCF-based (WACC 7.1%, terminal growth 0%) TP is S$2.09 as we reduce capex estimates.
- Our bull-case & bear case TP for M1 is S$2.35 & S$1.95 assuming 6% & 10% revenue share for TPG by 2022 respectively
Key Risks to Our View: Limited uptake of TPG’s services.
- As an inexperienced operator, TPG could struggle to deploy and maintain a network that could challenge the network quality of M1.
- Under this bull-case scenario, our TP is S$2.35 for M1.