M1 upgraded by DBS as ‘negatives are in the price’

M1 location in Singapore Geylang neighbourhoodM1 location in Singapore’s Geylang neighbourhood

DBS upgraded M1 to Hold from Fully Valued on signs that the telco will be able to increase its service revenue.

That’s due to its partnership with Circles.Life and as data revenue is reaching an inflection point where its growth is outpacing the decline in voice and SMS revenue, DBS said in a note on Tuesday.

The bank also expected consensus earnings forecasts for 2018-19 would be raised, as would dividends, by 5-10 percent.

“Consensus also expects M1 to lose more revenue share than its peers to TPG, which we think is unlikely due to the former’s partnership
with Circles.Life,” it said.

“We believe that M1, being the network provider of Circles.Life, is benefiting from around 1 percent revenue share gained by Circles.Life by virtue of its low-touch business model and customisable plans,” DBS said. “While the market is concerned about TPG’s entry in late 2018, Circles.Life is quietly chipping away market share under the radar.”

DBS raised its M1 target to S$1.76 from S$1.49 on the slower decline in mobile revenue despite TPG’s entry into Singapore’s market and on new revenue from the Internet of Things (IOT).

It expected the IOT services will contributed around 10 percent of M1’s total revenue by 2020, reducing the drag from TPG’s entry.