M1 - DBS Research 2017-01-13: Fourth player concerns reduced by network sharing

M1 - DBS Vickers 2017-01-13: Fourth player concerns reduced by network sharing M1 LIMITED B2F.SI

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.


Valuation

  • 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.




Sachin MITTAL DBS Vickers | http://www.dbsvickers.com/ 2017-01-13
DBS Vickers SGX Stock Analyst Report HOLD Upgrade FULLY VALUED 2.09 Up 1.780



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