Accept the offer as outlook still looks murky for M1, says OCBC

Accept the offer as outlook still looks murky for M1, says OCBC

PC Lee
31/01/19, 01:02 pm

SINGAPORE (Jan 31): Keppel Corp and Singapore Press Holdings (SPH), through offer vehicle Konnectivity, and together with concert parties and valid acceptances, have amassed a total stake of 34.41% in M1.

A total stake of 50% is needed for the offer to turn unconditional.

The offeror also announced that it does not intend to increase the offer price of $2.06/share under any circumstances and has extended the offer to Feb 18.

This follows on the heels of the IFA’s “fair and reasonable” opinion that has since been published.

In a Tuesday report, OCBC Investment Research says Konnectivity is unlikely to be keen on engaging in a bidding war, which could otherwise lead to them overpaying to obtain a majority stake.

In OCBC analyst Joseph Ng’s view, the overriding aim for offeror is to extract value from its legacy investments.

One way of achieving this is through the current offer, but a higher bid would also allow them to achieve that same aim via an exit at a higher price.

M1’s 4Q18 results were broadly in line with OCBC expectations. Operating revenue grew 3.7% y-o-y to $312.8 million, comprising 29.4% of house full-year estimates.

Postpaid mobile revenue fell 1.5% y-o-y to $127.1 million, on the back of declining ARPU as more customers switched to SIM-only plans. EBITDA fell 10.3% y-o-y to $68 million, which was in part due to the higher handset costs and subsidies in 4Q18.

PATMI came in at $25.7 million, representing a 21.4% y-o-y decline. The group declared a full-year dividend of 11.2 cents/share compared to 11.4 cents/share in 4Q17.

In the prepaid segment, while M1 has been cautious in the past, the notable ARPU drop could indicate greater willingness to compete in this segment.

On the postpaid front, OCBC believes that increasingly competitive offerings should become more commonplace even before TPG Telecom transits to its commercial rollout.

Separately, with the consolidation of AsiaPac Distribution, M1’s enterprise team would be better placed to offer a wider suite of solutions, but likely at the expense of margins.

“With this corporate development underway, we maintain our ‘accept the offer’ rating and fair value of $2.06,” says Ng.

As at 12.54pm, shares in M1 are trading 1 cent lower at $2.05.


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