Extent of Competition Will be Major Determinant

• M1’s 1H18 results were in line with consensus and our expectation. Management guidance of lower profit in 2H18 affirms our expectation of a more challenging 2H. 
• We maintain our forecasts, DCF-based Target Price (WACC 4.1%, LTG -1%) of SGD1.63 and HOLD. 
• The industry’s fortune and how our assumptions will pan out will heavily depend on the extent and impact of competition. In the sector, we prefer StarHub (SGX:CC3) (Rating: BUY, Target Price: SGD1.96) whose de-rating has exceeded our base-case outlook.

Guidance for Lower Profit in 2H18 Y-o-y

M1’s 2Q18 revenue at SGD254m (flat q-o-q; +2% y-o-y) were squeezed by falling international revenue and handset sales offsetting growth in wireless service and fixed network/enterprise revenue.

1H18 revenue accounted for 47%/48% of MKE/FactSet consensus forecasts. 2Q18 EBITDA and profit were SGD78m and SGD36m, both up 4% q-o-q and 1% y-o-y); compared to MKE/consensus, 1H18 EBITDA represented 52%/52% and net profit 56%/55%. But management guided for lower y-o-y 2H18 profit due to expected new competition.

Source: Maybank Kim Eng Research - 30 Jul 2018