M1 Limited - UOB Kay Hian Research 2015-10-12: Limited But Profitable Bundling

M1 LIMITED B2F.SI

M1 (M1 SP) - Limited But Profitable Bundling

M1 is not handicapped by the lack of a pay-TV service offering as it could bundle multiple services and multiple mobile lines. It continues to differentiate itself through innovative new services, such as Data Passport and mySIM.
M1 provides attractive free cash flow yield of 6.3% and would rebound the strongest in the event that we do not have a fourth mobile operator.
Maintain BUY. Target price: 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’s Data Passport service allows customers to use their data bundle overseas at monthly subscription of S$10 per country. Customers are able to use their smartphones as they do when in Singapore without worrying about incurring hefty roaming charges. Data Passport service is available for Malaysia, Indonesia, Hong Kong, Taiwan, Japan and the US.

The entry-level plan is priced at S$30 per month (instead of the usual S$42 or a 28% discount) and comes with 300 minutes of calls, 1,000 SMS and a 3GB data bundle. Those who commit to a 12-month service contract can get a larger data bundle of 5GB.

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.

M1 is not handicapped due to the lack of a pay-TV service offering as it can bundle multiple services and multiple mobile lines. It continues to differentiate itself through innovative new services, such as Data Passport and mySIM. M1 provides attractive free cash flow yield of 6.3% and would rebound the strongest in the event that we do not have a fourth mobile operator.

We have conducted a scenario analysis based on two possible outcomes: Scenario A - No new entrant, and Scenario B - Fourth mobile operator disrupts the status quo. We attribute a probability of 75% for Scenario A and 25% for Scenario B. Our probability-weighted target price for M1 is S$3.26.
In the event that we do not have a fourth operator (Scenario A), our target price for M1 would be S$3.58 (Upside: 23%). In the event that a fourth operator enters the mobile market (Scenario B), our target price for M1 would be S$2.31 (Downside: 20.6%).

M1 provides attractive free cash flow yield of 6.3%.
Investors flocking back to M1 in the event that we do not have a fourth mobile operator.

Jonathan Koh CFA UOB Kay Hian | http://research.uobkayhian.com/ 2015-10-12

UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 3.26 Same 3.26