An impending payment for spectrum usage rights by M1 might help frame the possible consolidation of the telco sector to take place by this coming June, says Foo Zhiwei of Macquarie Securities in his Nov 5 report.
In a response to Foo's question at M1 parent Keppel's 3QFY2024 briefing on Oct 24, M1's CEO Manjot Singh Mann says that a spectrum payment of some $188 million initially due this month can be deferred to next June.
This move comes amidst long-running speculation that Keppel, as part of its overall bid to actively recycle its assets, might sell privately-held M1, which in turn, fits into an ongoing consolidation trend among regional telcos as they repair mobile markets previously hurt by intense competition.
"If Keppel does intend to sell M1, it will likely have to do so before the payment deadline," suggests Foo.
Among the four mobile players in Singapore, Singtel, the leading operator with a market share of more than half, is not expected to be the acquirer as it will run afoul anti competitive regulators.
Between the other remaining two telcos here, Foo sees StarHub CC3 as the more likely party than Simba, which is listed in Australia under the name Tuas.
See also: UOBKH calls Centurion Corp a stock for ‘growth-minded investors’
"StarHub appears the better suitor, given the existing spectrum joint venture and adjacencies," says Foo, referring to StarHub's existing network joint venture with M1.
"It will, however, face some pushback given the spectrum it will hold in aggregate post combination," he adds.
According to Foo's analysis, be it StarHub or Simba, the maximum Keppel can fetch from the possible sale is around $1.7 billion.
See also: With 300MW wind-solar project win in India, Sembcorp at 64% of 2028 renewable energy goal: CGSI
A higher level will cause StarHub's net debt to increase beyond 4x ebitda - assuming the acquisition is fully funded by borrowings.
Simba, in contrast, is likely to fund this possible acquisition via equity - a suggestion supported by how Tuas' share price has increased by around two-thirds year to date on improving numbers reported.
On the other hand, Foo points out that Keppel has thus far paid some $2.3 billion for M1 and subsequent acquisitions and that it has no reason to sell at a loss.
As such, Foo believes that Keppel, in the event of a sale, will keep M1's enterprise business, which was often discussed at its results briefings but not the consumer mobile business which is presumably yearned by StarHub and Simba for the additional market share.
In his Nov 5 note, Foo upgrades StarHub to "outperform" along with a target price of $1.30. "We view the current risk-reward in StarHub to be asymmetric," he states.
According to the analyst, any downside for StarHub is protected by its dividend yield of around 6%, which is higher than Singtel's given how its share price has run up by some 30% year-to-date, versus StarHub's gain of just over 8% in the same period.
On the other hand, there are two possible upsides. First, the possible acquisition of M1 will "more likely than not" lift StarHub's value to between $1.39 and $1.40, depending on the transacted price.
For more stories about where money flows, click here for Capital Section
Even without the possible acquisition, StarHub is set to enjoy earnings growth as it continues to execute its multi-year tech transformation programme that can extract better efficiencies, says Foo.
StarHub shares changed hands at $1.20 as at 3.32 pm.
