M1 – Phillip

Biggest beneficiary of developments in the industry

Biggest beneficiary of developments in the industry

Retail broadband could be the game changer for M1

Excellent yield play for uncertain times

Resume coverage with a Hold recommendation and target price of S$2.52.

Biggest beneficiary of developments in the industry

In our view, the biggest beneficiary of developments in the local Telco scene would be M1. Barriers to entry were lowered for the smallest player in Singapore and provides opportunities for the company to transit from a pure mobile player to a full fledge integrated service provider.

Growth in retail broadband to be a game changer for M1

Currently, the retail broadband market had been dominated by SingTel and Starhub. However, Next Generation National Broadband Network (NGNBN) eliminated the infrastructure constraints that deterred M1 from entering this market in the past. In Sep 2009, M1 prepared itself for this new opportunity by acquiring Qala, which allows M1 level up with an existing client base. We see this as a major development for the company as it ventures into the fixed line business.

Expect meaningful gains in retail broadband market

According to statistics published by IDA, Singapore currently has c.1.2mn residential fixed broadband customers. Assuming a typical contract length of 24months, we estimate that on average, 50k broadband customers could be up for renewal every month. Our estimate is higher than the guidance provided by M1 during its 2QFY11’s earnings conference call of 10-12k subscriptions due for renewal in the market.

With an average ARPU estimate of S$45/mth and assuming that M1 captures 20% of contracts up for renewal, the company could add S$1.3mn to its fixed line revenue per quarter. This would lead to retail broadband revenue market share ofS$85mn for M1 by end FY13E, as compared to the current S$400mn for SingTel and S$240mn for Starhub. Being a new entrant to the market, M1 would need to offer very competitive rates in order to quickly gain market share. We believe that the company’s recent promotional offer of S$39/mth for a retail 100Mbps fibre line is marginally profitable at best after deducting the S$21 interconnection charges paid to Nucleus Connect & OpenNet.

Comments are Closed