SINGAPORE (July 14): RHB is maintaining its “neutral” call on M1 with a target price of $2.05.
This is due to major shareholders exiting the company and the entry of MyRepublic as a new competitor.
In a Friday report, RHB expects M&A activity to continue to lend support to its share price.
Since the group’s three major shareholders – Singapore Press Holdings (SPH), Keppel Telecommunications & Transportation (Keppel T&T) and Axiata Group – announced in March their intention to undertake a strategic review of their collective 61.5% shareholdings, M1’s shares have “held up relatively well”.
”We think ‘transaction premiums’ may have eroded due to recent industry developments with funding a potential stumbling block for bids to materialise. These may well have derailed the exit plans by shareholders, including that of Axiata Group which holds a 28.5% stake,” says RHB.
Axiata’s management previously highlighted that the decision on the joint divestment will be made by 3Q17, while it still has not ruled out raising its stake in M1 if a suitable buyer is not found.
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RHB believes that the prospects for a divestment may have dimmed after MyRepublic’s revelation last week that it would enter the market as a MVNO by October and roll out its mobile services in 2018F.
MyRepublic’s entry also adds uncertainties and concerns over escalating competition with TPG Telecom.
As M1 will be announcing its 2Q/1HFY17 results on July 18, RHB expects the group’s revenue and earnings prospects to remain challenging on the back of continuing weak usage and roaming revenues.
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The analyst expects M1’s mobile service revenue (MSR) to further decline 3-4% y-o-y in 2Q17 or flat q-o-q as customers are more interested in taking up SIM-only plans.
“The bright spot should continue to come from fixed services/enterprise sales, led by public sector jobs, smart nation projects and demand for cloud services,” says RHB.
As of 10.26am, shares in M1 are trading 2 cents lower at $2.05.