M1 – Kim Eng

Margin concerns fading


Upgrade to Buy. We expect margin concerns for M1 to fade for a while as the new iPad should not cause a dent, the iPhone 5 launch is unlikely till October 2012 and the telco appears to have shed its previous aggressive stance on fibre, even as the government steps in to smoothen NBN rollout issues. Upgrade to Buy with a target price of $2.85 (including DPS of $0.145) for a total return of 14%.

No adverse margin impact expected from new iPad. When Apple’s new iPad comes onto the market, expected to be available today, we do not expect M1 to suffer a margin upset. The iPad tends to have a much smaller impact on subscriber acquisition costs than the iPhone. In fact, with all the telcos making a concerted break away from unlimited data caps on their new iPad plans (now only 10GB bundled), we are hopeful tablets will play a larger role in boosting data ARPUs.

Easing up on aggressive fibre stance. M1 appears to be easing up on its aggressive stance on fibre. At the recent IT Show 2012, it raised its promotional monthly rate for 100Mbps home fibre broadband from $39 to $45, putting it closer to SingTel’s rate of $49.90 and StarHub’s $49.65. Even so, M1’s rate is still considered attractive vis-à-vis its peers because its price point is lower and it also includes a bundled mobile broadband plan with 5GB data cap.

Enough time for margins to recover. With the new iPad out on the market, the next iPhone (iPhone 5 or just the new iPhone?) is not expected to be launched until October. This is in line with the timing of the iPhone 4S last year, when Apple pushed back the rollout date from a traditional June launch closer to the year-end holiday season. M1’s margins had taken a beating in 4Q11, hence this will give it time – at least two quarters – for its margins to recover.

Fibre to get higher speed limit, positive for M1. The government has finally stepped in to force OpenNet to be more responsive to market needs. As OpenNet works on increasing its permanent installation capacity and comes out with a way to better handle demand fluctuations, we anticipate faster growth in fibre net-adds this year. NGNBN take-up has been slow last year, but if the teething issues are resolved, this will be a positive catalyst for M1.

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