M1 Limited - CGS-CIMB Research 2018-09-27: Exit Opportunity Comes Ringing!

M1 LIMITED (SGX:B2F) | SGinvestors.io M1 LIMITED SGX:B2F

M1 Limited - Exit Opportunity Comes Ringing!

  • Keppel-SPH makes pre-conditional VGO for M1 at S$2.06/share in cash.
  • We think the VGO is likely to go through, even if Axiata does not accept offer.
  • We upgrade M1 from Hold to Add with a higher target price of S$2.06.

Keppel and SPH make VGO for M1 at S$2.06/share

  • Keppel Corp (SGX:BN4) and Singapore Press Holdings (SGX:T39), via an SPV (“Konnectivity”), have made a pre-conditional Voluntary General Offer (VGO) for all M1 shares at S$2.06/share in cash.
  • Konnectivity (and parties in concert) have 33.27% deemed interest. Pre-condition for this VGO is regulatory approval from the Infocomm Media Development Authority (IMDA). The VGO is also conditional upon Konnectivity (and parties in concert) obtaining sufficient acceptances such that it holds more than 50% of M1 at close of offer.

~ SGinvestors.io ~ Where SG investors share

No intention to preserve M1’s listing status

  • If pre-conditions are met, the free float requirement is not met.
  • Keppel-SPH’s rationale for the VGO is the need to intensifying competition.

VGO is likely to go through

  • Why we expect the VGO to go through:
    1. IMDA to object, as the transaction will not alter the competitive landscape;
    2. It is not subject to Axiata's acceptance. Konnectivity only needs a minimum acceptance of 17.23% (outside of SPH's 13.45% stake tendered to it), in order for it (and parties in concert) to hold more than 50% of M1 at close. ~ S G investors . io ~ Where SG investors share
    3. Other shareholders should accept the VGO as it is at a 26%/29% premium to the last traded price/3-month volume weighted average price (VWAP).

Will Axiata accept the offer?

  • We are unsure if Axiata will taking the driver's seat going forward, it may reconsider its position.
  • If Axiata accepts:
    1. it will receive RM1.66bn cash, or 18.5 sen per Axiata share, which can be used to pare down debt and/or re-invested into higher growth businesses (special dividends unlikely, in our view), ~ S G investors . io ~ Where SG investors share
    2. gain on disposal is c.RM97m (M1's book value: S$1.94/share), and
    3. our SOP-based target price will rise by 5 sen/share to RM4.90 (as we have only imputed in S$1.50/share fair value for M1) .

M1 upgraded to ADD; revised Target Price is S$2.06

  • We upgrade M1 to go through.
  • Key downside risk is non-approval from IMDA or insufficient acceptance for the VGO.

FOONG Choong Chen CGS-CIMB Research | https://research.itradecimb.com/ 2018-09-27
SGX Stock Analyst Report ADD Upgrade HOLD 2.05 Up 1.500