M1 - Giving life to LTE (DMG)

Buy

Price S$2.41

Previous S$2.85

Target S$2.85

THE BUZZ

M1 has launched Singapore’s first commercial LTE network in selected parts of the republic. The coverage will be progressively expanded island-wide by 1Q2012. The telco is rolling out the service to enterprise customers first until more LTE enabled devices are available in the market.

OUR TAKE

Asia’s first. We believe M1 (29%-owned by Axiata) is the pioneer in the commercialization of a LTE network in South East Asia, having conducted trials over the past year. Its 2 rivals, Singtel and StarHub, plan to launch their LTE networks by 2012 and are in various stages of field test and trials in selected locations. M1 joins the ranks of a handful of mobile operators to have commercialized their LTE networks (mainly in Europe and the US), albeit on a small scale, with a string of trials and committed deployments across the globe. TeliaSonera was the first operator to roll out LTE in Norway back in Dec 2009.

First mover advantage constrained by lack of devices and fledgling ecosystem. While LTE is a natural progression for current 3G networks, early adopters are inherently constrained by the lack of handsets and devices, which are only expected to be made available on a wider scale from 2013. As such, we are not surprised that M1 is only making the service available to mobile broadband enterprise customers. This should give it ample time to fine-tune its LTE strategy, address technical glitches and assess other deployment strategies before making the high-speed network available to mainstream small screen customers. The service is currently available in Suntec City, Beach Road, Tanjong Pagar, ShentonWay, Chinatown, Marina Bay and Tanjung Rhu.

Maintain BUY. We are leaving our core net profit forecasts of SGD170.4m and SGD187.5m for FY11 and FY12 unchanged for now. While M1’s first mover advantage in LTE is positive in terms of its branding campaign, we see little upside in the short to medium-term until adoption reaches critical mass, accompanying the maturity of the 4G eco-system over the next 2-3 years. The stock’s key share price re-rating catalysts are: (i) the stronger than expected results going forward; (ii) potential for further capital management; and (iii) betterthan-expected take-up of its NGNBN service.