M1 – CIMB

Market share erosion on SingTel assault

Market share erosion to persist

We have updated our subscriber market share assumptions to reflect our view that SingTel remains focused as aggressor in Singapore’s mobile market and is poised to gain further market share in terms of subscriber but this will come primarily at M1’s expense. However, we believe the pace of SingTel’s subscriber market share gains should slow in 2008 as we expect StarHub to defend its subscriber market share more aggressively.

We believe that SingTel’s bundling strategy is an offensive strategy (customer acquisition) against M1 which lacks bundling capability but is a defensive strategy (customer retention) against StarHub. This is likely to result in SingTel gaining postpaid mobile subscriber share from M1. We also expect SingTel to use price as a competitive weapon to capture prepaid market share with M1 bearing the brunt of such as a move.

Valuation and recommendation

Maintain Neutral with reduced target price of S$2.29. Our earnings estimates are reduced by 0.5-1.8% for FY07-09 as a result of our revised markets share assumptions. This lowers our DCF (WACC: 7.9%, Terminal growth: 1%) valuation to S$2.29 from S$2.40 previously. While downside risk for M1 is limited by potential yield of over 8%, M1 lacks upside catalysts as it continues to face increasing competitive pressure from SingTel and StarHub. Visibility of NGNBN growth opportunities is low at this juncture and we do not see compelling reasons for M1 to be an M&A target.

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