M1 – CIMB

Muted tone

Our recent visit to M1 left our views unchanged. Any re-rating catalysts will depend on improvements relating to LTE and NGNBN, we feel. Take-up of fibre remains slow owing to issues at OpenNet.

The regulator has stepped in to resolve issues such as bureaucracy and installation capacity at OpenNet. Lacking re-rating catalysts, we remain Neutral and keep our DCF target price (WACC 7.9%). Switch to StarHub which has capital-management potential, in our view.

Benign competition, eyeing higher LTE price

There are no competitive hotspots emerging in the mobile space. M1 has stopped offering unlimited mobile broadband to new customers. It has launched LTE services but only to corporate users and then limited to the central business district and industrial areas. M1 plans to raise LTE prices when subscribers expand in 2H12. SingTel also has plans to raise LTE prices when coverage reaches a larger part of the country.

Catalysing NGNBN

Along with the other service providers, M1 has submitted its response to the regulator on the provision of services to NGNBN and is awaiting response from the IDA. Among the matters raised are bureaucratic issues; revision of installation quota, and inconsistent data between OpenNet and access seekers.

Potentially higher capex

M1’s capex could rise on the back of more stringent regulatory requirements for mobile coverage. M1 has not revealed numbers as it is still in dialogue with the regulator on more reasonable coverage terms.

Lacking catalysts

M1 continues to lack re-rating catalysts, in our view. Such catalysts could come from raising data prices, resolving matters with NGNBN, and clarity on its capex from the regulator’s plans to boost service quality. M1 noted a slight improvement in OpenNet’s attitude to resolving issues but much more would need to be done. Switch to StarHub, which is likely to manage capital in the form of a special DPS/capital repayment in 2H12, on top of its attractive recurring 20ct DPS.

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