M1 shares suffering from massive bout of diarrhoea

Being M1 customer, I like its unlimited free calls to three M1 numbers to local voice calls. Because of this innovative product, I have been its customers for many years. This is the power of subscription for a telecommunication company. In fact, mobile subscription is considered the most important investment moat for a telecommunication company because the motivation to switch to another mobile phone carrier is low once a customer subscribed to its data plan. However, as an investor, I would never invest in M1 shares.

From almost $4.00 in 2015, M1’ share price plunged to $1.73 lately. Being the smallest player, M1 faces the biggest risk of shrinking market share with the entry of new competitor, TPG Telecom. To make matter worse, Singapore market is very small and saturated.

According to Infocomm Media Development Authority (IMDA), the mobile penetration rate in Singapore is about 150%, making Singapore one of the most well-connected countries in the world. This means that some of the subscribers may be using more than one line. Being the smallest player, it is not surprising that outlook for M1 is worrying.

With falling share price, investors may be wondering if it is the right time to buy M1 shares on the cheap. However, a word of caution is that when it comes to stock investing, cheap may not indicate value. In March, the three major shareholders – SPH, Keppel Telecommunication & Transportation and Axiata Group – appointed Morgan Stanley to advise on a strategic review of their stakes in M1. In July, the trio announced that they would not proceed with the review.

In my opinion, I suspect that interested parties in M1 may have made low-ball offers to the major shareholders. That could be why the review did not result in any transactions. Nevertheless, investors did not take the outcome kindly and punished the stock. After the announcement, the share price fell from $2.10 to $1.73. On current form, the shares seem destined for an ominous downward spiral.

In terms of financial performance, the telco continued to struggle in light of challenging operating environment. Net profit after tax for first half of the year declined 17.6% to S$68.8 million, partly driven by higher depreciation and interest expense. Total mobile customer base decreased 2,000 in the quarter to 2.04 million, and mobile churn was higher at 1.7%. With this set of dismal results, it would [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]

Read my other articles on Singapore telcos:

1. Three-way battle for SingTel, M1 and StarHub
2. SingTel’s NetLink Trust IPO application approved
3. SingTel at a cross road
4. Short selling on SingTel shares
5. SingTel shares to rocket on NetLink Trust IPO?
6. SingTel share in supreme form
7. SingTel increased investment moat aggressively

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