M1 - DBS Research 2016-12-15: Most vulnerable to TPG

M1 - DBS Vickers 2016-12-15: Most vulnerable to TPG M1 LIMITED B2F.SI

M1 - Most vulnerable to TPG

  • TPG wins the fourth player spectrum auction at 3x the reserve price. 
  • Expect TPG to capture 8.5% revenue share by 2022. 
  • M1 most impacted by TPG’s entry, expect earnings to drop by 38% by 2022 from 2015 levels. 
  • Maintain FULLY VALUED with a lower TP of S$1.78.

TPG secures fourth player spectrum license. 

  • TPG snatched the spectrum license to become the fourth mobile operator in Singapore. The winning bid was a whopping S$105m, three times the minimum reserve price of S$35m. TPG will be allocated a total bandwidth of 60MHz (2x10MHz of 900MHz band and 40MHz of 2.3GHz TDD) with new spectrum rights commencing on 1 April 2017. 
  • TPG will be required to provide nationwide street level coverage for 4G within 18 months from the start of the new spectrum rights.

We project TPG to gain 8.5% mobile revenue share by 2022 versus 7% earlier. 

  • With an annual EBITDA of A$775m and FY16 (July year-end) net debt-to-EBITDA at 1.6x, TPG has enough room to raise the S$500m to S$1bn required to roll out a nationwide mobile network. Hence, we believe the impact on the incumbents from the entry of TPG to be more acute, and we project TPG to secure 8.5% revenue share by 2022. 
  • In our bull-case and bear case scenario for the existing telcos, we project TPG to secure 6% and 10% revenue share respectively.

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.


  • Maintain Fully Valued with a lower TP. Our revised DCF-based (WACC 7.1%, terminal growth 0%) TP is S$1.78 as we cut our earnings estimates after FY18F. 
  • Even under our bull-case TP of S$2.10, M1 offers limited upside potential. Our bear case TP for M1 is S$1.65.

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 the incumbents. In this scenario, we expect TPG to only capture 6% of the revenue share from the incumbents leading to a relief rally for M1. 
  • Under this bull-case scenario, our TP is S$2.10 for M1.

Sachin MITTAL DBS Vickers | http://www.dbsvickers.com/ 2016-12-15
DBS Vickers SGX Stock Analyst Report FULLY VALUED Maintain FULLY VALUED 1.78 Down 1.970