March 20, 2017

M1’s shareholders, Axiata Group, Keppel Telecommunications and Singapore Press Holdings with respective shareholdings (28.5%/19.2%/13.4%) and a collective 61.1% stake, are reviewing their stakes in the telco which could potentially lead to an exit or selldown.

We think this may be a prelude to an eventual merger (with StarHub) which would significantly bolster both telcos in a bigger and more formidable outfit that would be in a better position to compete with Singtel and TPG Telecom (TPG).

We maintain our forecasts, which assume a FY17F-19F core earnings CAGR of -16% due to competition from TPG, which is slated to unveil its mobile service by 2018.

M1’s share price surged 8% last Friday before trading was suspended pending the announcement. We believe potential M&A news flow would be supportive of sentiment on the stock. Maintain NEUTRAL, TP S$2.05.—RHB

M1 closed at S$2.170 today.