SINGAPORE (Aug 18): UOB Kay Hian has resumed coverage on M1, Singapore’s smallest telco, with a “buy” rating and lower price of $1.98 compared to $2.52 previously, assuming that M1 and StarHub will embark on network sharing now that negotiations have resumed.
Should network sharing with StarHub fail to materialise, UOB’s target price would drop to $1.55.
This comes after the telco’s major shareholders – Axiata, Keppel T&T and Singapore Press Holdings (SPH) – recently concluded their strategic review on the divestment of their stakes in the company without reaching a consensus on selecting the preferred bidder.
In a Friday report, analyst Jonathan Koh says it is likely such a strategic review could resurrect in future, with the three major holders remaining potential sellers.
“Axiata could raise funds by divesting its stake in M1 for re-investment in high-growth emerging markets, such as India. Keppel T&T, as part of conglomerate Keppel Corp, could undergo restructuring. The telecommunications business is not a core business for SPH. Thus, the need for a strategic review could resurface again. We would not rule out an industry consolidation over the longer term as well,” elaborates the analyst.
With the impending launch of the iPhone 8 and 8 Plus, Koh is also anticipating M1 to be finding ways to sign new customers up as well as attract its existing customers to re-contract earlier, so as to lock in customers with new two-year contracts ahead of the entry of TPG Telecom in 2018.
“Unfortunately, doing so would substantially increase M1’s handset subsidies in 4Q17 and 1H18. We estimated handset subsidies would increase 38% and 29% yoy for 4Q17 and 1H18 respectively,” he adds.
On account of M1’s below-par performance in 1H17, according to Koh, as well as the increase in handset subsidies, the research house has thus cut its 2017-18 net profit forecasts by 11% and 24% respectively.
As at 12.21pm, shares in M1 are trading 2 cents higher at $1.80.
