M1 LIMITED (SGX:B2F)
M1 - Awaiting VGO
- Maintain NEUTRAL based on Target Price of SGD2.06, in line with the pre-conditional VGO price, 2% downside.
- M1's 9M18 results were ahead of estimates, on stronger-than-expected EBITDA margin. We see the VGO as an exit opportunity, given the downside risks to earnings and dividends in the medium term from the rise in competitive intensity (impending entry of a fourth mobile operator, TPG).
- The key risk for the stock is the VGO falling through.
Above expectations
- M1's 9M18 core earnings formed 91% of our forecast and 85% of consensus estimate, mainly from stronger-than-expected EBITDA margin. Despite the marginal 0.8% q-o-q decline in EBITDA, core earnings fell a stronger 5% on higher associate losses.
- Note that management has suspended the 3Q18 results briefing due to the ongoing pre-conditional voluntary general offer (VGO) exercise by major shareholders.
Fixed services continue to be the fastest growing segment,
- .. up 26% y-o-y in 3Q18 (9M18: +22.6% y-o-y), driven by stronger corporate projects (mainly related to managed services and access). As a result, its service revenue contribution inched higher to 20% in 3Q18 (2Q18: 19%).
Mobile service revenue (MSR) down 2.5% q-o-q (-0.1% y-o-y),
- .. mainly due to somewhat from seasonally stronger roaming revenue. Postpaid ARPU narrowed to SGD34,000 postpaid subs in 2Q18, postpaid net-adds moderated to 24,000 in 3Q18. We believe growth continues to be driven by SIM-only plans (2Q18: 17% of postpaid base).
- Average data per month from 5.2GB per month in 2Q18.
Forecasts
- Our FY18F-20F core earnings are raised slightly by 15% after reviewing our opex assumptions. Management had previously guided for weaker 2H18 earnings competition.
Maintain NEUTRAL at VGO price.
- Our Target Price is based on the pre-conditional VGO price of SGD2.06 announced on 27 Sep by major shareholders, Keppel Telecommunications and Transportation (KTT) and Singapore Press Holdings (SPH). The exercise is still pending the approval of the Info-communications Media Development Authority of Singapore (IMDA), which is expected by end-November.
- While there is a possibility of the VGO falling through, we see the risk as small, with the offeror/parties acting in concert needing only an additional 17% shares for the deal to be unconditional.
- In our view, the offer price is fair (9x FY19F EV/EBITDA), with investors given the option and the opportunity to cash out. This comes on the back of the intense competition in the market (the impending rollout by TPG Telecom) and downside risks to earnings and dividends in the medium term.
Singapore Research
RHB Securities Research
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https://www.rhbinvest.com.sg/
2018-10-25
SGX Stock
Analyst Report
2.060
SAME
2.060
