M1 - OCBC Research 2015-11-30: Offers highest yield among peers

M1 LIMITED B2F.SI

M1: Offers highest yield among peers

 Worst performing in terms of share price

 Sees low single-digit earnings growth

 Attractive 6.5% yield for FY15

M1 is the worst performer among the telco stocks so far in 2015, down some 20.2% YTD; but from a high of S$3.99, the stock has fallen to as low as S$2.74, or about 31%.

However, it has to be said that M1 has consistently outperformed the other two telcos for the past few years, given the company's perceived potential in gaining market share in the consumer broadband and fixed network services segments.

Besides concerns over rising interest rates, we believe that the growing talks of the emergence of a fourth telco in Singapore could also be weighing on sentiment; this as M1 may be most at risk of losing market share to a new entrant.
For one, M1 has the smallest market share among the three incumbents.
Secondly, M1 tends to target the younger consumers, who are more likely to be price sensitive and also probably more attracted to talks of MyRepublic's plan to offer unlimited data packages should it become the fourth telco here.

Having said that, we note that the company's outlook still happens to be the most optimistic among its peers. Recall that M1 is guiding for “low single-digit” earnings growth in 2015, which is largely in line with our forecast of 2.6% for this year.
We are expecting the telco to see an earnings growth of 1% in what could shape up to be a difficult 2016, for not only M1, but the whole economy due to slowing growth around the world.

And in line with the sharp correction in its share price, M1's forecasted dividend yield has risen from as low as 3.5% at the beginning of the year to about 6.5% currently, which we believe should more than adequately mitigate any spike in interest rates here. Hence, we maintain our BUY rating on the stock with an unchanged S$3.66 fair value.
We also note that M1 offers the highest total expected return of nearly 34%; and its share price could rise strongly if the fears of a new telco are unfounded.

Carey Wong OCBC Securities | http://www.ocbcresearch.com/ 2015-11-30

OCBC Securities SGX Stock Analyst Report BUY Maintain BUY 3.66 Same 3.66