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M1 Takeover Bid Is Sparking Interest In SG’s Telco Companies

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The telco sector isn’t the sexiest recently. But in the past week, the spotlight has shone on the telco sector, thanks to Keppel Corp’s plans to consolidate in the mobile industry. Keppel Corp announced last week that it is launching a buyout offer together with Singapore Press Holdings to take over M1.

Currently, Keppel Corp owns 19.3 percent of M1 while SPH owns 13.5 percent of M1. They are looking to acquire Axiata Group’s 28.7 percent stake in M1 to become an individual majority shareholder. According to analysts, this will allow the new major shareholder to dictate the business strategy. Furthermore, the deal will allow M1 to utilise Keppel’s datacentre assets to supplement its weak enterprise segment. M1 can also retail Keppel Electric’s energy to its home customers and bundle them together with its other services to drive revenue.

M&A Possibilities Galore In Telco Industry

According to UOBKH, there could also be other possible M&A scenarios involving some of the other telcos.

  1. M&A Between StarHub And M1

The merger of StarHub and M1 could lead to the creation of a strong number two player in the market. Starhub and M1 could combine to own a market share of more than 40 percent in mobile services. However, it would be expensive for StarHub to mount a takeover offer for M1 given that M1 trades at a premium valuation compared with StarHub.

  1. M&A Between StarHub And TPG Singapore

Since TPG Telecom is planning to separate its Singapore mobile business from its existing business, there is a possibility of TPG Singapore being acquired as well. UOBKH thinks that with TPG Singapore’s size, it is smaller and more digestible compared to M1. Acquiring TPG Singapore should present a lower price tag for StarHub to achieve the goal of consolidating the mobile industry and restoring price stability.

  1. M&A Between M1 And TPG Singapore

Even though M1 is the subject of merger talks, M1 shouldn’t be discounted as an M&A play. There is a possibility for M1 and TPG Singapore to merge via a share swap. However, foreign investors, including Malaysian and Australian shareholders, could garner more voting rights compared with local shareholders, which could be unwelcomed by the authorities.

Investors Takeaway: Defensive Qualities Of Telcos Still Unrivalled

Since the Global Financial Crisis, telcos have recorded positive net additions. Post-paid mobile subscribers have also increased year-on-year since the Global Financial Crisis. UOBKH thinks that it is now a good time to accumulate telcos as they provide a shelter against the risk of contagion spreading across emerging markets.

  1. Singtel

Among the telcos, Singtel is the top pick of UOBKH. Singtel provides a defensive shelter due to its geographical diversification. Mobile business in Singapore accounts for only seven percent of group revenue (if including its proportionate share of its associates’ revenue).

BUY, TP $3.94

  1. StarHub

UOBKH notes that Starhub’s execution has improved significantly since the arrival of Peter Kaliaropoulos as CEO. Within two months of his appointment, StarHub has scaled up in cyber security with the merger of Accel Systems & Technologies with Temasek’s Quann World to form Ensign InfoSecurity.

BUY, TP $1.92

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