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The Boring Investor

Author:   |   Latest post: Sun, 17 Jun 2018, 11:06 PM

 

Do M1's Acquisitions Make Sense?

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It is a well known fact that competition among telcos has been heating up in the last couple of years. All 3 telcos have been finding new sources of revenue outside their traditional telco businesses. They have been busy acquiring companies, such as Singtel's acquisition of Turn for USD310M in Feb 2017 and Starhub's acquisition of D'Crypt for up to SGD122M in Dec 2017. In comparison, M1's acquisitions have been very small. So far, their acquisitions are as follow:
  • Aug 2016 - SGD3.0M for a 30% stake in Octopus Retail Management, which provides Point-of-Sales (POS) solutions for retailers and Food & Beverages (F&B) outlets.
  • Oct 2017 - SGD2.45M additional investment in Kliq, which provides digital mobile remittance service.
  • Apr 2018 - SGD3.0M for a 25% stake in Trakomatic, which provides Business-to-Business video analytics solutions to retailers.

Do these acquisitions have synergy with M1's existing businesses? Let us look at them one by one.

Octopus - Point-of-Sales

The POS solution is provided by Octopus Retail Management. This is an independently run business and not marketed together with M1's other services. As such, there is no synergy with M1's existing businesses. In fact, M1 has another mobile POS solution that is developed independently! To be fair, M1's in-house mPOS solution only facilitates payment transactions whereas Octopus' POS solution covers inventory tracking and customer loyalty programmes.

It is a bit difficult to see how this acquisition ties in with M1's overall business strategy. For FY2017, this associate lost $0.29M for M1.

Kliq - Digital Mobile Remittance Service

Though Kliq, M1 provides remittance service to 9 Asian countries such as Bangladesh, India, Philippines, etc. Users have to M1 customers. Payment for the remittance is made through AXS machines (which accept ATM, credit and debit cards), m-AXS mobile app (which accepts internet banking, credit and debit cards) and at M1 shops at IMM and Paragon  (which accept cash).

Although users have to be M1 customers, there is no integration with other M1 services. Users cannot pay for their remittance through their M1 monthly bills or their pre-paid stored value accounts. Furthermore, M1's share of the telco market is only 24.0%; by limiting the service to only M1 customers, they are effectively reaching out only to a small group of potential users.

I cannot see how this business ties in with M1's overall business strategy. Perhaps, someone from the remittance industry can see how it makes sense. In Oct 2017, M1 announced that it jointly invested an additional $5.02M in Kliq with Merchantrade Asia Sdn Bhd, thereby diluting its stake from 100% to 51%. Merchantrade is 20% owned by Axiata, one of M1's controlling shareholders.

Trakomatic - Video Analytics Solution

Trakomatic provides video analytics solutions to businesses to understand the movement and profiles of customers in their stores. The solutions can leverage on existing cameras and sensors that stores already have. This can complement M1's own data analytics solution, which analyses and provides similar information from the telco data of its customers. Trakomatic can provide information of customers within the store while M1 can provide information of potential customers in the vicinity of the store. Taken together, the data analytics created by M1 and Trakomatic will be more comprehensive and more valuable to businesses.

Conclusion

So far, M1 has acquired small stakes in 3 companies for a total of less than $10M. Among these 3 companies, 2 of them do not seem to complement its existing telco businesses very well. The more exciting acquisition is Trakomatic, which complements its data analytics business. M1 should be very careful about acquisitions, as its debts have been steadily climbing from $250M in Dec 2013 to $450M in Dec 2017.

P.S. I am vested in M1.


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