M1 Ltd - RHB Invest 2017-06-01: M1 Meets MyRepublic?

M1 Ltd - RHB Invest 2017-06-01: M1 Meets MyRepublic? M1 LIMITED B2F.SI

M1 Ltd - M1 Meets MyRepublic?

  • Bloomberg reported May 31, citing unnamed sources, that MyRepublic may be seeking a private partner to jointly bid for M1 (M1 SP, Rating: NEUTRAL, Target Price: SGD2.05). 
  • We think MyRepublic could be a potential suitor as it lost out in the 4G race and could be looking to revive its mobile ambitions. The stumbling block for a deal, in our view, would come from the high asking price by sellers including Axiata Group (AXIATA MK, NEUTRAL, TP: MYR4.90). 
  • Maintain NEUTRAL on M1 based on DCF-derived Target Price of SGD2.05 (9% downside) (WACC: 8.5%, TG: 1.5%), as stock sentiment may likely be supported by M&A newsflow.

A second chance. 

  • MyRepublic (MR) lost its bid for a 4G spectrum to TPG Telecom (TPG), the new fourth entrant in an auction held last December. TPG’s winning bid of SGD105m was only marginally higher than MyRepublic’s SGD102.5m for the 60MHz spectrum block set aside by the Infocomm Media Development Authority (IMDA). If MyRepublic is successful in its takeover of M1, it would revive its aspiration to become a 4G mobile operator in Singapore. 
  • MyRepublic stands to gain from M1’s already extensive 3G/4G network, a strong base of customers to cross-sell and M1’s strong distribution and sales channels. 
  • In our view, an MyRepublic-M1 union, if it materialises, would place M1 in a stronger position to stave off competition from TPG, which may look to bundle a mobile service with a fixed broadband offering to capture subscribers.

Deal breaker likely on pricing. 

  • We believe M1’s valuation is likely to be at a good premium, given the controling block of up to 61% put up for sale by its major shareholders, Axiata Group, Keppel Telecommunications and Singapore Press Holdings. They hold a respective 28.5%, 19.2% and 13.4% stake in the telco. 
  • We understand the three shareholders would consider exiting en-bloc, although there is a provision for an individual shareholder to consider a unilateral divestment. 
  • Axiata’s book value in M1 is approximately SGD520m (MYR1.6bn). Management previously highlighted that a decision on M1 would be made by 3Q17. We think Axiata could also turn buyer of M1 if it is not able to garner a good price for its stake.

Singapore Research RHB Invest | http://www.rhbinvest.com.sg/ 2017-06-01
RHB Invest SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 2.050 Same 2.050