Up for Sale; Maintain HOLD

• Keppel Corp (SGX:BN4) and Singapore Press Holdings (SGX:T39) are reportedly considering a sale of their indirect and direct M1 stakes. Their combined holding represents the largest voting block of 33% in the telco.
• Maintain forecasts and DCF-based (WACC 4.1%, LTG 1%) Target Price of SGD1.63, pending a transaction and details of any buyer(s). Maintain HOLD as the stock is at fair value based on current known prospects.
• NetLink Trust (SGX:CJLU) is our preferred pick among Singapore telcos for its defensive business that should be supportive of healthy dividend yields.

Two Out of Three

Recall that between Mar and Jul 2017, M1’s three major shareholders evaluated and ultimately rejected offers for their stakes. At the  date prior to their share-sale cancellation, M1’s share price was SGD2.10 (15x FY17 P/E). In this new round of consideration, its shareholder, Keppel T&T (SGX:K11), is also up for possible sale by Keppel Corp.

On the other hand, it appears that Axiata (AXIATA MK) is not, this time, as it has not made any disclosure.

Who Could It Be?

• Thus far, there have been no indications of interested parties. Back in 2017, newswires claimed that China Mobile (941 HK) and global private-equity funds were among those keen. A new shareholder could alter M1’s business strategy and balance sheet, in our view.

Risks Remain the Same

With TPG Telecom still a dark horse until it launches services in 4Q18, industry implications remain uncertain. We acknowledge that the valuation that a potential new shareholder ascribes to M1 could be a stock catalyst in the short term.

Swing Factors 

Upside 

• A benign competitive environment or a hasty retreat by new entrants would be an unexpected surprise. 
• Growth in fixed network via fixed broadband and/or enterprise could provide earnings surprises in the medium to long term. 
• Any takeover interest by a new entrant or TPG could trigger a sector re-rating. 

Downside 

• Should TPG resort to handset subsidies to poach subscribers an escalation in incumbents’ own efforts could take place. 
• Higher-than-expected capex pressure as a result of competition and/or 5G rollout. 
• Risks of a more rapid decline in wireless voice, SMS and roaming as data adoption gains momentum. 

Source: Maybank Kim Eng Research - 24 Sep 2018