“Why didn’t I buy M1?” You may be asking yourself this question again and again, when you saw M1 share price jumped nearly 29.4% to $2.11 from $1.63, since the acquisition announcement on 27 September 2018.
There are a lot of reasons why M1 share price doesn’t go into investors’ radar, as the financial performances of the company has been mediocre and declining over the years. Reason? The local telco industry is getting really competitive, with Singtel being the largest player, followed by Starhub and the smallest M1. Check out our view on Singtel share price.
What Happened to M1 Share Price?
The stock performance of M1 over the past few years have been disappointing. M1 share price fell from close to $4 in 2015 to $1.54 in 2018. Who in the right mind would want to put their money into a stock that is deteriorating like this?
The future growth of M1 looks bad. But we don’t invest everything for growth. If you’re investing for dividend, you may have bought M1 from June to Aug 2018, and gained the upside of 29.4% in the share price after the announcement.
Before we go further, let us find out more about M1. M1 is the smallest among the 3 Telcos. Its revenues are driven across 4 key segments – Handset sales, Fixed services, Int’l call services and Mobile services. Why is M1 a good candidate for dividend play? It’s because the company has been distributing very consistent and sustainable dividend over the past few years. Read on to understand what do I mean by that.
M1 Share Price – A Good Catch as Dividend Play?
M1 has paid out 11.4 cents dividend per share based on the latest record. If you calculate the price of $2.11 due to the take-over offer, M1’s dividend yield worked out to be 5.4%.
But look, before the announcement, M1 share price was hovering at around $1.6 for almost three months between June to September this year. If you work backwards, the dividend yield was mouth-watering 7.125%!
Imagine if you just put your money in the bank for saving, there’s no way you can get more than 7% return on your investment. What’s more, the payout ratio of the dividend has been sustainable for M1 over the years.
M1 Share Price and its Payout Ratio
The payout ratio is the percentage of net income that a company pays out as dividends to common shareholders. A payout ratio of 10% means for every dollar in Net Income, 10% is being paid out as a dividend.
Any number above 1 means it is unsustainable as you are paying out more dividends than you earn in net income. One example will be Starhub, with a payout ratio of 108.4%. Sorry Starhub, not bad mouthing you. I’m just stating a fact.
On the other hand, M1’s earnings per share for FY17 was 14.3 cents. This yielded a payout ratio of 80%, or 0.8, similar to their committed figure in the past.
“If the dividend yield was attractive, and the dividend payout was sustainable, then why didn’t I invest?” I asked myself once again and you might be doing the same thing now.
M1 Share Price Lesson
As an investor, we are constantly learning how to deal with emotions. We have the regret of missing the boat, we also have the fear of investing in the wrong company. M1’s share price has been dropping for past few years, what if it will drop further right? Afterall, who would have expected the announcement coming, unless you have insider news or have been tracking on M1’s insider buying.
At the end of the day, it’s really about sticking to your own game plan. Different people invest for different reasons. M1 would have passed the criteria as a dividend stock, but it totally fails as a growth stock. If you are not comfortable with the stagnant and declining earnings, even though it presents a 7% dividend yield, you can choose to forgo M1. Just invest in something you truly have confidence with.
Back on the announcement of acquisition, how will privatising M1 turn out for Keppel Corp Ltd (KCL) and Singapore Press Holdings (SPH), that is still a question mark. In fact, M1’s major shareholder Malaysia’s Axiata Group is likely to reject the offer, according to the news.
But if the acquisition is successful, Fitch Solutions analyst Kenny Liew said in an e-mail, according to the Straits Times.
“M1’s access to last-mile infrastructure can be used to provide connectivity for properties and infrastructure under Keppel’s management, while Keppel T&T’s data centre services can support M1’s weak presence in the enterprise segment,” he said.
“In other business areas, for instance, Keppel can better integrate its electricity distribution business with M1’s home services, and there are also media distribution opportunities that SPH can provide and better realise through M1.”
As an investor, we should always exercise our own judgement. Don’t act on impulse for the fear of losing out, because losing money is worse than losing out.
Mobile Penetration Rate in Singapore
The mobile penetration rate in Singapore is at 148.8% as of 2017. In our saturated island, the government has awarded the licence for a 4th telco to enter business in Singapore, TPG Telecom. Operations is poised to start in the 2nd half of 2018 for TPG Telecom.
This adds additional competition to M1 who has not done well in recent years with telcos such as Circles Life, Zero Mobile, Zero1 and MyRepublic entering into the market other than the traditional competitors of Singtel and Starhub.
Hey wait!!!! That makes 7 telcos in Singapore instead of 4.
So how can TPG Telecom be the 4th telco when there are already 7 telcos providing services in Singapore???
There are indeed 4 telcos in Singapore and there are currently 7 telcos providing service in Singapore. (TPG Telecom has not officially started their service to the mass public as of writing.)
How weird is it to have both in the same sentence.
There are 4 telecommunication companies that holds license to operate in Singapore, they are Singtel, Starhub, M1 and TPG Telecom. Circles Life, Zero Mobile, Zero1 and MyRepublic are mobile virtual network providers that lease the infrastructures from Singtel, Starhub and M1 to operate.
Mobile Virtual Network Providers (MVNPs) or digital telcos as they are more commonly known are rather new in Singapore, however, our northern neighbours, Malaysia have 14 MVNPs themselves. Hong Kong has 26 MVNPs themselves. Talk about competition!!!
M1 has not done well at all since the introduction of the 4 digital telcos in Singapore. Therefore, with the entrance of TPG Telecom as the 4th telco, one cannot help but wonder why did SPH and Keppel acquire this ailing telco?
As reported in the Straits Times, M1’s access to last-mile infrastructure is a good addition to Keppel”s operations. As users of mobile services, we do not realised but the digital telcos are still utilising the infrastructure of the telcos in Singapore. This is simply because these telcos already have the infrastructure in place, this suddenly makes the license that M1 hold to be a very valuable asset.
It is true that there is little switching cost between telcos for consumers in which M1 has suffered.
However, M1 still has the infrastructure and network that are very valuable to them and shareholders. With mobile penetration rates are at 148.8%, it makes us wonder what can M1 do to turn their fortunes around? Will it eventually be a good acquisition for SPH and Keppel?
Well it depends on what the management plans to do in future. The increased competition is not a challenge that is unique only to M1. Singtel and Starhub are also facing the same issue. Of the 3, Singtel has been the most efficient in facing the challenges and diversify their operations to provide additional services.
With our increasingly connected world, despite our 148.8% mobile phones penetration rate, there is no reason why there cannot be new revenue sources.
As Mad-Eye Moody, or rather Barty Crouch Jr, advised Harry Potter in the Goblet of Fire, “Play to your strengths”. We know that M1 have their license and infrastructure. Utilising it well will make M1 a solid company.
In our increasingly connected world and the development of Internet of Things, we look at two areas in which the infrastructures may be a gem in future.
Investment in Singapore for Beginners
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