M1 – Kim Eng

Mastering the Art of Prepaid

Prepay it forward. M1’s new prepaid MasterCard offering looks attractive enough to help it regrow its prepaid mobile segment, which has seen negative net-adds for the past two quarters. We maintain our BUY call on M1 and target price of SGD2.85, based on implied yield of 5% on FY12F DPS of SGD0.145.

Pioneers new prepaid MasterCard. The M1 Prepaid MasterCard is a multi-purpose debit card that allows users to top up M1’s prepaid cards, pay public transit fares, ERP and car park charges and make contactless purchases. We think it is an interesting product that should help M1 increase customer stickiness and reverse negative net-adds in prepaid. The main selling point is that it offers a simple way to pay for goods and services but without the complexity of owning a credit card.

Aimed at the young, the old and everyone in-between. M1 is targeting this card at any consumer who values convenience in general; in other words, the majority of its customer base can benefit. We think there are wide applications for the young, the elderly, migrant workers as well as professionals. For example, parents can charge the card with a fixed mobile allowance as well as their monthly allowances. Spending can be tracked online for better budgeting and financial management. There are no age or income restrictions to obtain this card.

Spotlight on StarHub. We took a look at the prepaid plans that are available on the market today and concluded that StarHub appears to be vulnerable to this new product from M1. We would not be surprised if it runs a negative prepaid net-add number in 2Q12 and 3Q12. Our comparison shows that StarHub currently is the least competitive in mobile voice calls, both locally and internationally. A 20-minute voice call costs SGD1.74 for StarHub versus SGD1.60 for M1 and SingTel, and its IDD rates to Indonesia and the Philippines are 2-4 times higher.

Maintain BUY on M1 with target price of SGD2.85. M1 has guided a stable outlook for FY12, driven by both its mobile data and fixed services segments. We expect its new product to drive higher-quality prepaid net-adds as well. Maintain BUY and target price of SGD2.85, based on implied yield of 5% on FY12F DPS of SGD0.145.

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