• 20% pullback from high
• Still positive about outlook
• Valuations are more reasonable

Sharp correction post 1Q15 results

M1 Ltd recently saw a sharp sell-down in its share price, dropping nearly 20% from its 52-week high of S$3.99 to its current price around S$3.21. While the sell-down emerged shortly after the telco reported its 1Q15 results, these were in line with our forecasts. Instead, we suspect the market may be spooked by rising interest rate concerns, especially after the stock‟s sharp outperformance both against its peers as well as the STI index.

Talks of 4 th telco also weighing on sentiment

We believe that the growing talks of the emergence of a fourth telco in Singapore could also be weighing on sentiment; this as M1may be most at risk of losing market share to a new entrant. For one, M1 has the smallest market share among the three incumbents. Second, M1 tends to target the younger consumers, who are more likely to be price sensitive and also probably more attracted to talks of MyRepublic‟s plan to offer unlimited data packages should it become the fourth telco here.

Outlook still most upbeat among peers

Having said that, we note that the company‟s outlook for 2015 still happens to be the most optimistic among its peers. Recall that M1 is guiding for “moderate” earnings growth this year (likely to be in the low teens), versus its peers‟ single-digit level sort of growth. M1 is also positive on its fixed services segment, where it expects to grow share in the government and corporate sectors, citing the launch of new services like ultra-high speed broadband plans, data centre and cloud-based applications.

Upgrade to BUY - current yield at 5.7%

In the wake of the recent sell-off, we note that M1‟s forecast dividend yield is back up to around 5.7% - the highest among its peers (StarHub would be second around 5%). And while rising interest rates is probably a given, the extent of the rate hikes remains uncertain, given the still splotchy pace of economic recovery in the US. And as the current share price also offers a decent 14% capital appreciation to our unchanged S$3.66 fair value, we upgrade our call to BUY.

Source: OCBC Research - 5 Jun 2015