M1 Ltd - A Different Perspective

M1 Ltd has been falling for a prolonged period, from the heights of $3.930 on April 2015, till $2.020 on 31 Oct 2016, before recovering slightly recently. Over the period of freefall, there was also a slight recovery during this period of fall.

Nevertheless, as per the chart below, the share price is currently at the lowest point over the last 5 years.

Why?

Many factors has caused this downfall, such as the pending establishment of the 4th Telco, the Jan-Feb 2016 correction, the insider selling by the CEO and also the recently released 3rd Quarter financials which were deem to be "very poor".

These factors were further enhanced by analyst reports that states M1 Ltd will be the worst hit among the 3 Telcos. Yes, people continues to be "addicted" to analyst reports.

So there are some truth...

1. M1 will be the most badly hit by the emergence of 4th Telco - This factor, as reported by many analyst reports, is due to M1's business model. Being the smallest Telco, non-diversified business that solely focus on telco business and having mainly customers in Singapore are some of the reasons many believe will cause M1 revenue and net profit to fall greatly in future. This will then in turn affect the company's dividend payment in future.

2. Quarterly Revenue and Net Profit on a downward trend - By looking at the last 4 quarters' revenue and net profit, you can't help but notice the downward trend the company is in.

3. Lack of Catalyst and Direction - With Singtel going into cyber-security, and Starhub also going into cyber-security and investing in MM2 Asia Ltd as well, M1 seem to be directionless.

4. CEO actually sold some shares recently - This one I got nothing to say.

But it is still NOT the end of the world...

1. It is still early days for 4th Telco - Does anyone still remember Virgin Mobile? The telecom company that was in Singapore for less than half a year. This indicate that it is actually very hard to to break into the current Singapore Telco Industry. Furthermore, I have stated before;

"(6) Bidders of the 4th Telco "expects" to gain about 10% to 15% of the market share. This is not drastic to M1 or Starhub. Nevertheless even if a dropped in Revenue, a company may still maintain its dividend amount."

YES, a 10% to 15% drop in market share will not be drastic. AND M1 will not be the only telco company that will be affected. Singtel and Starhub will ALSO BE AFFECTED! Wake up!

2. 4th Telco is already out - Circles.Life can actually be the 4th Telco. This telco service is formed from the partnership of M1 and Liberty Wireless. With many people already switching over to Circles.Life, you can actually state that this partnership is the 4th Telco. Furthermore, do note that this is a partnership with M1. Thus, even if M1 losses some customers, it may still stand to gain as we do not really know what is stated in the agreement. But if customers leave Starhub or Singtel, there is only loss for these companies.

3. M1's Fibre Boardband Customer - Despite a drop in M1's mobile customer, but M1 continues to increase its fibre broadband customers. M1 has been stepping up on getting more fibre boardband customer, ever since Singapore started to have fibre boardband. In my opinion, M1 has the first mover advantage in this area.

4. The future is bright - Despite not having much news about its future, M1 has actually made some progress;

 - M1 and Ascendas-Singbridge will start on the 1st fibre-ready building installation that will be completed in 2018
 - M1 purchase of shares in Octopus Retail Management Pte Ltd.

5. Temasek Holding bought M1 shares recently - This is what sparks the recent mini recovery. You will feel amazed if you actually purchased M1 at a share price that is lower than what Temasek Holding bought them for.

6. In my opinion, M1 is better than Starhub - In the business world, M1 is focusing on fibre boardband and data, while Starhub continues its hubbing strategy. I believe this will not work that well for Starhub because we can forgo SCV and use data to stream online. In this way, a M1 user can watch the shows, that is actually shown on SCV, on other website and they do not need to pay extra. But a Starhub user may need to pay slightly more for SCV.

7. M1 Ltd continues to enjoy the competitive advantage of being the only 3 or 4 Telecommunication companies industry - With such high barriers to entry, M1 continues to enjoy being one of main telecommunications operator in Singapore. This can be emphasize by the announcement of 4th Telco, which IDA has to take such a long time to decide on who can be the 4th Telco in Singapore.

8. Humans are generally lazy - In my opinion, I believe that switching telco company is not such a easy thing to do. This is because humans are generally lazy. If there is no issue, why change? Furthermore, all of us sign on for 2 years. To switch mobile operator, you need to wait 2 years.

In Short 

In view of the reasons above, instead of selling my M1 shares, I will continue to buy and average down my share price for M1 Ltd.

Current Price: $2.100 as of 7 Nov 2016.

Please do your own due diligence before you invest in this stock.

Do note the author is vested in this stock/company at an average share price of $2.390. 

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