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

M1 LIMITED B2F.SI

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.

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.

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.

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.

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.

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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