M1 – CIMB

Best exposure to broadband segment

• Maintaining earnings forecasts, target price and NEUTRAL. M1 remains our top pick in the telco sector where we are maintaining our NEUTRAL position. Our DCFbased target price of S$1.71 (WACC: 10.5%, LT growth: 1%) is unchanged. While there is a lack of re-rating catalysts, we like M1 for its attractive yields of 8%, the best exposure to wireless broadband and the biggest upside from the upcoming NGNBN.

• M1 offers the best exposure to the wireless broadband growth, in our opinion, given its more concentrated cellular exposure. Its mobile data revenue had grown to 10.9% of service revenue in 2Q09 from 9.1% in 1Q08 on the back of a rapid increase in subscriber usage. About 15% of M1’s postpaid subscribers used its wireless broadband services in 2Q09, up from 9% in 1Q08. The growth should continue and the industry could see 1m wireless broadband subscribers in three years’ time, up from the current estimate of 400K-500K.

• NGNBN another avenue of growth. We reiterate that M1 offers the greatest upside for NGNBN as it has no legacy business to cannibalise and NGNBN would give M1 a chance to address its single-product disadvantage. OpenNet’s rollout is progressing according to schedule with a target of 5% coverage by end-Sep 09, 15% by Dec 09 and 60% by end-2010.

• No capital management initiatives this year. Beyond the usual payout, M1 will not be returning excess cash to shareholders this year due to still-fragile economies and tight credit markets. However, it is not opposed to capital-management initiatives in FY10.

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