RHB: Take the offer for M1 shares

M1 retail outlet at Orchard Road In SingaporeM1 retail outlet at Orchard Road In Singapore. Image taken pre-Covid

Accepting the cash offer for Singapore telco M1’s shares will give the best risk-reward amid new competition from TPG Telecom, RHB said in a note this week.

“We continue to see downside risks to the company’s earnings and dividends, as it is more predisposed to the price-sensitive/value segment coupled with the weaker bundling strategy vs its larger (more converged) peers,” RHB said.

It noted that M1’s mobile revenue fell for the second straight quarter. The telco reported on Monday that its fourth quarter net profit fell 21.4 percent on-year to S$25.2 million on rising expenses and falling margins.

The S$2.06 a share general offer for M1 is from Konnectivity, which is special purpose vehicle set up by M1 shareholders Keppel Corp. and Singapore Press Holdings (SPH).

The bid for M1 is aimed at getting control of at least 50 percent of the telco to more easily engage in a “transformational” restructuring, which would likely include lower dividends, Konnectivity has previously said.

“The company is facing intensifying competition and industry disruption from the impending launch of a fourth Mobile Network Operator (MNO), as well as the launch of new Mobile Virtual Network Operators (MVNO) in Singapore. Continuing the status quo risks stagnation and further decline in shareholder value,” Konnectivity said in December.

RHB said a competing bid from Axiata, which holds a 29.7 percent stake, seems “increasingly unlikely,” even if it doesn’t tender its shares.

In addition, the fourth entrant into Singapore’s telco market, TPG Telecom, looks like a “mean challenger,” RHB said, pointing to offerings of unlimited 4G data bundled with free mobile calls, 20 minutes of fixed-line voice and 20 SMS a month in a 12-month free trial.

“Response to the initial go-to-market offer has been overwhelming, with the telco suspending further registrations in the interim,” RHB said.

RHB rates the stock at Neutral with a S$2.06 target.

Shares of M1 were flat at S$2.06 at 10:58 A.M. SGT.


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