M1 Limited - UOB Kay Hian 2015-09-17: Limited But Profitable Bundling


M1 (M1 SP) - Limited But Profitable Bundling 

  • M1 is able to overcome its handicap of not having a pay-TV business by bundling multiple services or multiple mobile lines. Concurrently, M1 intends to build up wholesale revenue by hosting MVNOs and has made its first significant investment overseas in Oman. 
  • Of the three mobile operators, M1’s share price would rebound most strongly in the event that there is no fourth mobile operator. 
  • Upgrade to BUY with target price at S$3.26. 


• Bundling multiple services and mobile lines. 

  • M1 has been able to bundle multiple services since it launched its fibre broadband services on 1 Sep 10. To date, M1 has garnered a subscriber base of 114,000, representing a market share of 9.7% for fixed broadband. 
  • 90% of M1’s fibre broadband subscribers also use M1 for mobile services. M1 also enhances its value proposition by bundling multiple mobile lines by offering a 15% discount for customers with one fibre broadband service and two post-paid mobile lines. The discount increases to 25% for customers who have four mobile lines. 

• Keeping abreast of the latest technology. 

  • M1 has completed the upgrade of its 4G network to Long Term Evolution-Advance (LTE-A) in Dec 14, doubling its download speed to 300Mbps using carrier aggregation. Its 4G network supports voice-over-LTE (VoLTE), which provides faster connection and better quality of voice calls. 
  • M1 has also deployed 4G small cells to improve data throughput within buildings to the same level as outdoor. 

• Building wholesale revenue. 

  • M1 has entered into an agreement to provide voice, SMS and data services on a wholesale basis to Liberty Wireless, a MNVO. Liberty Wireless will operate under the Circles Asia brand and focuses on post-paid mobile subscribers. It prides itself in offering the most innovative data packages and unparalleled customer experience. Liberty Wireless is scheduled to commence commercial operations by end- 15. 
  • Including Liberty Wireless, M1 would be hosting a total of three MVNOs. 

• First foray overseas. 

  • M1 has entered into an agreement to invest S$10m for a 15% stake in Telecom Oman (TeO). TeO is an international gateway operator and a mobile services reseller (MVNO) in the Sultanate of Oman, a high-income country with a population of 4m. 
  • Oman has an oligopoly of two mobile operators offering mainly services on a pre-paid basis. TeO could evolve to become the third mobile operator in Oman. 
  • M1 could increase its stake in TeO should it require capital injection to finance its expansion. 

• Upgrade to BUY. 

  • Our target price for M1 is S$3.26, assuming probability of 75% for Scenario A (no new entrant) and probability of 25% for scenario B (fourth mobile operator disrupts the status quo).

Jonathan Koh CFA UOB Kay Hian |
http://research.uobkayhian.com/ 2015-09-17
UOB Kay Hian Analyst Report BUY Upgrade HOLD 3.26 Up 3.08

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