• Long-term effects are unclear
• Maintain Hold rating with lower target price
■ What’s new
M1 today introduced a new range of post-paid “mySIM” mobile plans.
■ What’s the impact
These newly introduced plans appear to cater to those customers who do not wish to avail themselves of handset subsidies. In doing so, M1 joined its peers in Singapore in positioning itself to ride on this as yet nascent trend. The SIM-only plans appeal mainly to those customers who prefer to purchase smartphones on an unbundled basis, either because they are open to purchasing handsets separately – due to cost or other considerations – or they do not wish to change their handsets regularly.
Will these plans become popular? Unlike Europe, SIM-only plans have thus far enjoyed only limited success in Singapore. Aside from cultural factors, the popularity of, and the high costs associated with purchases of the iPhone and Samsung devices in the past may have been the contributing factors. In addition, to date, M1’s peers have not courted this market segment aggressively, and positioned their SIM-only plans mainly to enhance gross profits.
For example, Singapore Telecom (ST SP, SGD4.27, Hold ) priced its SIM-only and regular subsidy plans at similar price points; the company instead offers customers extra voice minutes (low marginal cost) for forgoing the handset subsidy. On the other hand, StarHub (STH SP, SGD3.94, Underperform ) offers a 20% tariff discount for SIM-only plans; while it appears aggressive, we calculate that this discount equates to a handset subsidy worth 4.8 months of contract value – which we believe is at the low end of the typical 4-6 months of subsidy offered on standard plans.
In contrast, M1’s SIM-only plans appear to pack a punch as they offer both higher tariff discounts (25% for entry level) and usage benefits (33- 50% more voice calls; up to 2GB more data volume) compared to its standard plans. Customers who make purchasing decisions based on voice-call benefits can potentially save even more (around 50% tariff discount). Overall, we calculate the offers equate to 6-12 months of subsidy, which seems to be higher than subsidies generally offered in the industry.
As such, while we expect the new plans to attract consumer interest and elicit competitive reaction, we are wary of the potential negative impact to M1’s profits depending on how consumers respond.
■ What we recommend
Given weak revenue trends seen in the 2Q15 results, we are lowering our 2015-17 EPS forecasts by 2.5- 5.5%. We maintain our Hold (3) rating but with a lower 12-month DDM-based target price of SGD3.33. The declaration of a special dividend is an upside risk while an increase in competition is a key downside risk.
■ How we differ
Unlike certain views in the market, we expect the shares to be rangebound, with potential upside capped by the rich EV/EBITDA valuation and downside limited by what we see as a reasonable 2015E dividend yield of 5.8%. (Read Report)
Read Related Report
M1's new aggressive SIM-Only plans - Subscriber affinity to handset upgrades may not lead to large disruptions, but still negative at the margin
Wednesday, 29 July 2015
Wednesday, 29 July 2015
- JP Morgan Asia Pacific Equity Research
Source : Daiwa Capital Markets