SINGAPORE (Jan 8): OCBC Investment Research is revising its “hold” rating on M1 to “accept the offer” while maintaining its current fair value estimate of $2.06 per share.
To recap, Konnectivity – a jointly-owned company between Keppel Corporation and Singapore Press Holdings (SPH) – announced a pre-conditional voluntary general offer (VGO) for M1 in Sept last year at $2.06 per share, in its bid to gain a majority stakeholding in the telco.
Shareholders of M1 have up until Feb 4 to accept the offer.
In a Tuesday report, analyst Joseph Ng highlights the offer as a “light at the end of the tunnel” for M1 shareholders – as without it, shareholders would continue to be exposed to further downside risks in the current competitive environment.
The offer price is a fair one given the “all-too-familiar headwinds”, he adds, as it comes at a 24.8% premium over OCBC’s $1.65 fair value prior to the pre-conditional offer.
“In our Dec 10 2018 sector report, we opined that it would be remiss of the market to discount the effect of TPG Telecom’s effect on average revenues per user (ARPUs), despite the somewhat modest capex spend in Singapore. As we have seen from TPG Telecom’s subsequent aggressive trial plan as well as generous offerings by incumbents, we believe our cautious outlook remains very much valid,” says Ng.
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According to the analyst, Konnectivity’s intention is “not too challenging” to fulfil considering how the company and its owners have a combined interest in about 33.32% of M1, and that the offer is not conditional on Axiata Group, which holds a 28.67% stake in M1, tendering its shares.
Nonetheless, he remains cognisant of the possibility for Axiata to come in with its own competing offer at a more attractive price.
“We note that shareholders can withdraw their acceptances after 14 days from the first closing date of the offer, if the offer has not by then become unconditional as to acceptances,” says Ng.
As at 11.35am, shares in M1 are trading 1 cent higher at $2.07 or 15.4 times FY18F earnings.
