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.
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“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.
