M1 – Kim Eng
• M1 has made its long‐awaited foray into the world of Pay TV with the launch of 1box. While the initial service is fairly modest, we believe this is just the tip of the iceberg with a bigger splash coming by 1H11 when content cross‐carriage is implemented. We expect M1 to be a beneficiary of the immense potential of the blurring of lines between TV and the Internet, particularly in the area of interactive IPTV.
• M1’s 1box is currently available as a value‐added service only for its fixed broadband subscribers. The four types of content – education, movies, games and music – are priced at $1.07‐5.35 per month or per view, on top of the monthly set‐top box rental of $5 (for broadband plans below 50Mbps) or $12 (for broadband plans above 50Mbps).
• While the 1box offerings are still modest, we expect more significant benefits for M1 when content cross‐carriage kicks in, and particularly when the proposed common featured set‐top box is ready. This settop box, developed by the Infocomm Development Authority of Singapore (IDA) and the Media Development Authority (MDA) under Project NIMS (Next Generation Interactive Multimedia Applications and Services), will replace the current multi‐box system and make it easier for subscribers to switch between service providers.
• The cost of entry into Pay TV is expected to be low for M1, as it will have no heavyweight content and its content will only be distributed to users upon subscription and on‐demand. Also, there will be no additional capex as there is no need for network investment. This is consistent with M1’s content‐light, low‐cost strategy.
Action & Recommendation
We maintain our BUY rating and target price of $2.63 (15x FY10F EPS). Dividend forecasts remain intact as capex assumptions are unchanged.