M1 – Kim Eng

Singing the 4G Tune

No big splash from 4G. Come 15 Sept, M1 will be the second telco in Singapore to launch 4G plans after SingTel. Its prices and data caps are closely in line with SingTel’s and we do not expect a price war to erupt. While ARPU should be boosted as they are priced at a premium to existing 3G plans, the impact on earnings is at best 10%, by our estimates. Maintain HOLD. However, M1 is our top telco pick for its attractive dividend yield of 5.7%, the highest in Singapore currently.

4G plans launched. M1 has launched four 4G plans for smartphones and three for mobile broadband devices, the second telco to do so after SingTel. Immediately, three things are notable. First, the 4G plans are priced at a premium to its 3G plans. Second, it has reduced its data bundles from 12GB to mirror that of SingTel’s (2GB, 3GB, 5GB). Third, as expected, M1 has removed its top-end unlimited plan and replaced it

with a lower cap 12GB data plan.

Should not rock the boat. M1’s 4G plans are rational as they are actually priced at a premium to SingTel’s 4G plans. As such, we do not expect net-adds to spike. However, the additional 1GB data allowance to be given for recontracting customers (worth SGD10.70) should equalise the price difference between the two telcos, hence it should minimise the churn and maintain its existing subscriber base. Over time however, the premium to 3G should boost its ARPUs.

Potentially 10% earnings upside. According to M1, 80% of its smartphone users uses less than 2GB of data a month, and less than 10% uses more than 5GB a month. Similarly, 80-90% of SingTel and StarHub’s users consume an average of only 1GB a month. As a result, they should be able to tap on 10-20% of their subscriber base to monetise the lower data caps. Depending on the actual usage, we estimate up to 9.6% upside to FY13 earnings in the best case scenario.

Maintain HOLD. We maintain HOLD on M1 with a target price of SGD2.65 based on peer average PE of 14x earnings as we roll forward to 2013. However, the stock is attractive on its dividend yield of 5.7%, still 430 basis points ahead of the 10-year Singapore Government Bond, and is our top Singapore telco pick.

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