M1 - RHB Invest 2018-09-28: Decent Exit For Minorities?

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

M1 - Decent Exit For Minorities?

  • Maintain NEUTRAL with higher Target Price of SGD2.06 from SGD1.68, 26% upside. Our new Target Price is consistent with the pre-conditional VGO price for M1 announced by KTT and SPH.
  • The offer values M1 at SGD1.9bn – a 26% premium over the pre-suspension price. We believe the cash offer is fair at 9x FY19 EV/EBITDA – this compares with the ASEAN-4 peer average of 8x, and M1’s historical EV/EBITDA mean of 8.3x.
  • The VGO presents an opportunity for minorities to exit, given intense competition in the market, which portends downside risks to M1’s earnings and dividends.
  • We expect M1’s shares to gap up upon resumption of trading.

VGO by key shareholders.

  • M1’s major shareholders, Keppel Telecommunications and Transportation (KTT) and Singapore Press Holdings (SPH) have jointly announced a conditional voluntary general offer (VGO) for remaining M1 shares at SGD2.06 per share. The exercise, to be carried out via a special purpose vehicle (SPV), Konnectivity, is conditional upon a minimum 51% of shares being acquired.
  • Post takeover, KTT/SPH will emerge as the single largest controlling shareholder. The VGO is pending approval from the Info-communications Media Development Authority (IMDA), following which a firm offer document will be dispatched. The takeover is slated for completion in 2Q19.

~ SGinvestors.io ~ Where SG investors share

Privatisation not a certainty, Axiata’s stake hangs in the balance.

  • Given that the parties acting in concert collectively own 33.27% of M1, we see a strong likelihood of the offer becoming conditional with only 17% additional shares required.
  • M1’s current largest shareholder, Axiata Group (AXIATA MK) could decide to dispose of its 28.7% stake (SGD547m) as it can no longer exercise significant influence.  ~ S G investors . io ~ Where SG investors share
  • Axiata’s book value in M1 is c.SGD1.94 as at SGD2.06.
  • In a separate announcement, Axiata said it would continue to evaluate all options where offers made reflect the future value of M1, including an acceptable control premium that is benchmarked on precedent transactions in ASEAN. Based on full acceptance, the cash outlay works out to c.SGD1.27bn.

A fair offer.

  • The offer price values M1 at net debt of SGD395m translates into 9.1x FY19 EV/EBITDA, which compares with the average ASEAN-4 EV/EBITDA of 8x and M1’s historical average EV/EBITDA of 8.3x. ~ S G investors . io ~ Where SG investors share
  • M1’s share price has de-rated by a significant 30% over the past 18 months on concerns over escalating threats posed by new players in the market.

Other Highlights

Decent exit opportunity

  • We view the offer as an opportunity for shareholders from TPG, the market has also seen the entry of a few mobile virtual network operators (MVNO) over the past 6-9 months, which adds to the competitive risks.
  • M1’s MVNO customer, Circles.Life (CL) forecast M1’s core earnings to decline by 12% in FY18F and 21% in FY19F on heightened competition, which would pressure dividend payouts.

Singapore Research RHB Securities Research | https://www.rhbinvest.com.sg/ 2018-09-28
SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 2.06 Up 1.680