Sunday, January 21, 2018

I Repurchased M1 Again!

2 posts ago, I asked readers to choose a counter, that I bought recently, to review. Many commented on CWX Global Limited, which I believe I had already explained quite significantly in that particular post. Therefore, I was reluctant to write about it. Luckily, someone else commented on M1 Limited (aka M1) and so here we go...

If you remembered, I wrote about selling all of M1 and keeping ComfortDelGro Corporation Limited (aka Comfort) in September 2017. As of today, I have sold all of Comfort and have repurchased M1. Within a 2 year period, I made some money on M1 but will have also made losses on Comfort.

You must have thought why am I doing this – Selling Comfort when Uberflash has been launched, and when they have already established contact with Uber.

The main reason was that I do not like Comfort's deal with Uber - such as where will the money come from? Will there be a lowering of dividend? In my opinion, I don't think the bottom has reached yet and it will still be an uphill battle against Grab.

Nevertheless, there is a tiny light at the end of the tunnel in this article and it should impact Comfort, especially Lion City Rentals, positively. But that is another story.

So why M1?

1. Stagnant Share Price Since Late August 2017.

Graph from InvestingNote
2. Contrarian Thoughts on M1

There have been minimum news and comments of M1 on Facebook, InvestingNote, Blogger's as well as Analyst's Front. This maybe due to M1 is no longer a topic that retail investors believe in anymore. Anyone who wanted to sell it will have already done it. Thus, this made me believe a bottom could have been reached.

This is also my contrarian self talking to myself.

3. Next Growth Phase

Everyone will have agreed that M1 will be suffering the most from the additional competitor within the Singapore Telecom Industry. Even M1 knew it...

Therefore, M1 seem to have actively diversifying into its next growth phase, which is their NB-IoT segment. 

Announced in Aug 2016, M1 stated it will worked with Nokia on Singapore’s first nationwide commercial NB-IoT deployment.

After 1 year, M1 announces that it launches Southeast Asia’s first commercial nationwide NB-IoT network

After that, it continue to announce a series of collaborations.


In addition, there are a few interesting companies that have stated they will be working or have already started working with M1 with via its' NB-IoT Systems in this announcement:

"...These solutions include smart energy management for buildings, environmental monitoring as well as asset and fleet management. Keppel Electric is piloting the NB-IoT Energy Management Meter, which it claims will provide customers with more cost-savings than traditional metering systems.

One of M1's NB-IOT customers is fleet management firm ComCentric. The company is using NB-IoT to track its vehicle fleet in real-time – even in underground areas. "It also gives us 40% better battery life," says Anthony Gloridas, CTO of ComCentric.

Some of its customers are also looking to expand their business with the help of M1's NB-IoT network.

Anacle Systems, for example, is working with developers such as CapitaLand, Ascendas and Mapletree to provide smart metering to over 200 commercial buildings in Singapore, Malaysia and China. Come next year, the company is planning to leverage on M1's network to deploy the smart metering solutions to residential buildings..."

Therefore, retail investors should expect this portion of their revenue to increase much more, when they announced the full year results on 23 Jan 2018. In addition, investors should also expect this segment to provide much more revenue for them in the financial year 2018.

But where exactly is this portion of the revenue stated?

Looking through the M1 quarterly presentation, you can see that the definition of fixed services revenue has expanded. In the 2nd Quarter presentation, it includes "large projects contribution". In the 3rd Quarter presentation, it includes "corporate segment project contributions". Thus, I believe this is the portion which revenue from NB-IoT are stated.
FY2016 Revenue
FY2016 COGS
2nd Quarter 2017 Revenue

2nd Quarter 2017 COGS
3rd Quarter 2017 Revenue
3rd Quarter 2017 COGS

In addition, with the above slides, I have also included a table to explain how this fixed services segment has been growing and its respective operating income percentage:

Fixed Services Segment
Some of you may argue that Starhub is also currently working with Nokia. I acknowledge that this is a risk and could be the result of Starhub and M1 signing an MOU to have a deeper cooperation. Nevertheless, I believe M1 has the first mover advantage in this segment as it took 1 year to reach where they are now.

Then again, Singtel is also launching their own IoT Network. I view this as a much bigger risk. But do note that Singtel seems to be running a different system and its more targeted at individuals rather than businesses.

4. IPhone X Launched At The End 2017

Based on this comparison on Hardwarezone, it seems to suggest that M1 strategy is to target the users who are more price-conscious, and on an overall basis, seems to be better than the other 2 telcos.

This could eventually led people to switch to M1. On the other hand, if more people switch to M1, this could also result in a larger cost of goods sold for M1 at the end of 4th Quarter, since M1 may need to pay more subsidies.

Nevertheless, I believe this launch could push M1's revenue higher in terms of handset sales.

5. 6% Dividend Yield

Based on my calculation below, it seems that it is possible for M1 to maintain 6% dividend yield. The senario are listed below.


If Net Profit is Maintained

In the event net profit for the 4th Quarter is maintained at $31.5 Million, dividend to be given out in the 2nd half will be maintained and dividend yield will still be around 6.18% for financial year 2017.

To maintain similar dividend as financial year 2016

In the event retail investors expect M1 to give out similar dividend as per financial year 2016, net profit for the 4th Quarter will need to be about $52.7 Million. This is impossible and I doubt retail investors are expecting that.

Worse Senario

In the event net profit for the 4th Quarter is only at $20 Million, dividend to be given out in the 2nd half will be only 4.9 cents and dividend yield will still be around 5.65% for financial year 2017. This is my worse case scenario.

M1 3rd Quarter 2017 Presentation

As per the presentation slide above, although I believe it is unlikely, but if the net profit falls below $30 Million, dividend amount given out maybe impacted. A string of news release will most probably caused M1 share price to collapse significantly. But I am prepared. You have been warned.

In Short

Re-purchasing M1 could be a wrong move at this point of time. But as I stated, I am prepared this time round and I really believe in their next growth phase in its NB-IoT segment.

Anyway, if you are interested to know more about The Ultimate Scorecard or Full Analysis, do visit the Fundamental Scorecard website for more information! 

Oh... and do remember, please like our Facebook page (T.U.B Investing) and follow me on InvestingNote.

2 comments:

  1. Genius!!! Congrats on the timely break out gains today :)

    ReplyDelete
    Replies
    1. Hi B,

      Thanks for commenting. It was just pure luck. Anyway, I guess some may disagree with me, especially if the results is bad when it's out, but in this kind of bull market, I guess I need to find some catalyst in order to get my 30%! Haha..

      Regards,
      TUB

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