M1 - DBS Research 2015-10-20: Marker share declines further

M1 - DBS Research 2015-10-20: Marker share declines further M1 LIMITED B2F.SI 

M1 - Marker share declines further 

  • Net profit of S$ 44.9m (+1% y-o-y, +1% q-o-q) was in line. 
  • Further loss of mobile market share to 23.1% versus 23.9% in 3Q14 and 25.3% in 3Q13. • Further downside from potential entry of fourth player to be announced in 2Q16. 
  • Maintain FULLY VALUED with unchanged S$2.60 TP. 


Service revenues flat. 

  • Revenue of S$ 277.6 (+11% y- Service revenues flat o-y, flat q-o-q) was in line. Handset sales continued to be the key driver for revenue growth. Mobile revenue was slightly lower y-o-y, impacted by lower postpaid ARPU due to new cheaper packages. International revenue continued to decline. Witnessed further loss of mobile market share to 23.1% versus 23.9% in 3Q14 and 25.3% in 3Q13. 

Higher handset sales squeeze margins. 

  • Higher handset costs and staff expenses decreased margins. The popularity of the iPhone has contributed to higher volumes and ASP, but has also increased handset costs for M1. However, handset subsidies can be minimised in future if new sim-only plans become popular. 


Downside risk from fourth player. 

  • We model 7% revenue share for the fourth mobile player by 2022 and expect a 10% adverse impact on M1’s revenue in 2022 versus 4% for StarHub. The winner of the reserved spectrum will be announced in 1Q16 while the actual operations of the fourth mobile player could start from 2Q17 onwards. The impact on M1 could be larger than its peers due to 
    1. more price sensitive user base; 
    2. lesser number of subscribers on bundled offerings; and 
    3. larger exposure to the mobile sector as a percentage of group revenue. 


  • We have used a terminal growth rate of 0% to reflect the uncertainties created by the entry of a fourth player in our DCF valuation (WACC 6.8%) to derive a TP of S$2.60. 
  • We maintain FULLY VALUED. 

Key Risks: 

  • Unsuccessful HetNet trails or inability to raise adequate funding. funding. Without HetNet, capex requirements could increase significantly. Another risk will be the fourth entrant’s inability to raise adequate funding for network rollout.

Sachin Mittal DBS Vickers | http://www.dbsvickers.com/ 2015-10-20
DBS Vickers SGX Stock Analyst Report FULLY VALUED Maintain FULLY VALUED 2.60 Same 2.60