We are no longer bearish on M1 after share price corrected 18% post announcement
of its 1Q15 results
. M1 continues to upgrade its network to improve data throughput
and enhance bundling to create value for customers. It has put in efforts to improve
customer service and cost efficiency. Upgrade to HOLD
Target price: S$3.60. Entry
• Keeping abreast of the latest technology. M1 has completed the upgrade of its 4G
network to Long Term Evolution-Advance (LTE-A) in Dec 14, doubling download speed to
300Mbps using carrier aggregation. The network supports voice-over-LTE (VoLTE),
which provides faster connection and better quality of voice calls. M1 has also deployed
4G small cells to improve data throughput within buildings to the same level as outdoor.
• Bundling to create stickiness. M1 was able to bundle multiple services since it
launched fibre broadband services on 1 Sep 10. To date, M1 has garnered a subscriber
base of 108,000, representing a market share of 14.2% for fibre broadband. It has
recently launched the fastest fibre broadband service at 10Gbps aimed at enterprise
customers, such as data centres, financial institutions and cloud service providers.
• Some 90% of M1’s fibre broadband subscribers also use M1 for mobile services. M1
offers discount of 15% for customers with one fibre broadband service and two post-paid
mobile lines. The discount increases to 25% for customers with four mobile lines. The
ability to bundle mobile services with fibre broadband and digital voice line has enabled
M1 to gain market share in post-paid mobile over the past three years.
• Revamp customer service. M1 has refreshed and renovated its 14 M1 shops with a
new store layout based on the counter-less concept. Sales staff is trained to handle the
full range of services, including enquiries, processing and payment, using handheld
tablets. M1 also introduced user-friendly self-service registration and bill payment kiosks.
• M1 plans to provide more customer services through online self-service channels.
Customers could sign up for new services, re-contract, check data usage and check bill
balance via M1’s website. It has introduced a handset pre-order and collection service.
Customers could select their preferred model, make payment and choose a pick-up
location or have the handset delivered to their homes. Such online services save time for
customers while, at the same time, improve M1’s cost efficiency.
• Investing in Oman. M1 has entered into an agreement to invest S$10m for a 15% stake
in Telecom Oman (TeO). TeO is an international gateway operator and a mobile
services reseller (mobile virtual network operator or MVNO) in the Sultanate of Oman, a
high-income country with a population of 4m. Oman has an oligopoly of two mobile
operators offering mainly services on a pre-paid basis. TeO could evolve to become the
third mobile operator in Oman. M1 could increase its stake in TeO should it require
capital injection to finance its expansion.
• Out of the quagmire but not out of the woods. M1 remains susceptible to regulatory
risks in Singapore, with mobile accounting for 81.5% of its service revenue in 1Q15.
Nevertheless, we are on longer bearish on M1 after share price corrected 18% post
announcement of its 1Q15 results.
• We maintain our existing earnings forecasts.
• Upgrade to HOLD. Our target price is S$3.60, based on DCF (required rate of return:
7.2%, terminal growth: 1.0%). Entry price is S$3.10.
SHARE PRICE CATALYST
• Growth from mobile business, augmented by expansion in fibre broadband.
• Capital management through special dividend provides positive surprises.
• The IDA is expected to announce its assessment of the submissions to its industry
consultation and the framework for the upcoming spectrum auction. (Read Report)
Source : UOB KayHian Research
Labels: M1, Telco