M1 - Maybank Kim Eng 2018-09-24: On The Block Again

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

M1 - On The Block Again


Up for sale; maintain HOLD

  • Keppel Corp (SGX:BN4) and Singapore Press Holdings (SGX:T39) are reportedly considering a sale of their indirect and direct M1 stakes. Their combined holding represents the largest voting block of 33% in the telco.
  • Maintain forecasts and DCF-based (WACC 4.1%, LTG 1%) Target Price of SGD1.63, pending a transaction and details of any buyer(s). Maintain HOLD as the stock is at fair value based on current known prospects.
  • NetLink Trust (SGX:CJLU) is our preferred pick among Singapore telcos for its defensive business that should be supportive of healthy dividend yields.



Two out of three

  • Recall that between Mar and Jul 2017, M1’s three major shareholders evaluated and ultimately rejected offers for their stakes. At the  date prior to their share-sale cancellation, M1’s share price was SGD2.10 (15x FY17 P/E). In this new round of consideration, its shareholder, Keppel T&T (SGX:K11), is also up for possible sale by Keppel Corp.
  • On the other hand, it appears that Axiata (AXIATA MK) is not, this time, as it has not made any disclosure.



~ SGinvestors.io ~ Where SG investors share

Who could it be?

  • Thus far, there have been no indications of interested parties. Back in 2017, newswires claimed that China Mobile (941 HK) and global private-equity funds were among those keen. A new shareholder could alter M1’s business strategy and balance sheet, in our view.


Risks remain the same

  • With TPG Telecom still a dark horse until it launches services in 4Q18, industry implications remain uncertain. We acknowledge that the valuation that a potential new shareholder ascribes to M1 could be a stock catalyst in the short term.


Swing Factors 


Upside 

  • A benign competitive environment or a hasty retreat by new entrants would be an unexpected surprise. 
  • Growth in fixed network via fixed broadband and/or enterprise could provide earnings surprises in the medium to long term. 
  • Any takeover interest by a new entrant or TPG could trigger a sector re-rating. 

Downside 

  • Should TPG resort to handset subsidies to poach subscribers an escalation in incumbents’ own efforts could take place. 
  • Higher-than-expected capex pressure as a result of competition and/or 5G rollout. 
  • Risks of a more rapid decline in wireless voice, SMS and roaming as data adoption gains momentum. 





Luis Hilado Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2018-09-24
SGX Stock Analyst Report HOLD Maintain HOLD 1.630 Same 1.630



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