OSPL - Good Morning S'pore - Central Dealing Desk

Stock Name: M1
Company Name: M1 LIMITED

Research House: Nomura

Price Call: BUY

Target Price: 3.70

Market Compass

11 December 2013~ Good Morning Singapore!

Singapore Idea Snippets:

11 Dec 2013 ~ Good Morning Singapore! Central Execution Team - The Excellence of Execution This product is made available by your Central Execution Team, for you as TRs of OCBC Securities to help you with your business and therefore it is confidential and only for internal circulation. It is not intended for onward circulation to non-OSPL TRs, clients or any other third party in this or any other version. Neither is this intended to be relied upon as a sole basis for any recommendation. TRs must also consider their clients' investment objectives, financial position and needs when intending to make or making any recommendation. For the front desk, by the front desk. All feedback to make this a better product is welcome. Global Flash: While You Were Sleeping Source: Marketwatch Quote for the day : Those who deny freedom to others deserve it not for themselves. - ABRAHAM LINCOLN Singapore: The Day Ahead SINGAPORE DAYBOOK :Stable bottom line for local telcos next year PROFITABILITY for the telco sector in Singapore is set to remain stable, with data revenue cushioning the bumps on the road ahead, according to the Fitch Ratings 2014 outlook report for telcos in the region. While revenue from text messages and international service will fall, a 20 per cent increase in mobile data revenue will offset the declines, resulting in a flat topline for the industry. "Data revenue will increase as a greater portion of users move to tiered data bundles, currently around 25-30 per cent of the overall subscriber base," the report said. "The data pricing structure has improved as customers now have to pay for incremental data use above 4 gigabytes (GB) per month; previously, users had a fixed monthly allocation of 10GB.". (Source: The Business Times) MARKET SCOOP Lum Chang incorporates two subsidiaries; buys UK property Far East Organization unit tops bids for Gambas Crescent Parcel 3 S'pore market offers 'safer path to growth' : Credit Suisse No TPP breakthrough after all, ministers to try again next month (Source: The Business Times) NOMURA Securities says ... M1 | BUY | TP: S$3.70 M1 will double its excess data usage charges from SGD5.30 to SGD10.7 per month per GB from 1 January 2014 Also for excess outgoing local voice calls, there will be a minimum one-minute charge and they will be billed per second thereafter At face value, the data re-pricing could boost revenues and EBITDA by 1-3%, but... 1) there could be some customers who may migrate to higher plans (especially if their excess usage is more than 2GB, we think customers could even become more vigilant towards their usage patterns, and cut back on usage As of Sept-13, M1 had 32% of its post-paid subs on tiered plans (or 322k subs), and around 16% were exceeding data bundles (or 52k subs) This is yet another attempt by the Singaporean operators to reprice data up, which is a positive for ARPUs SingTel also doubled its excess usage charges in September this year We maintain Buy on M1 - it is a simple story with simple catalysts There is a lot of focus on ARPUs since the operators moved away from 12GB to tiered pricing plans At a reported level, we haven't seen much improvement yet but a majority of this is attributed to falling roaming rates, which are still around 10-15% of wireless revenues we understand We think the Singaporean telcos missed out on a perfect opportunity to increase the base-line prices for all plans when 4G/LTE was launched - initially the operators intended to charge another SGD10/mth for 4G VAS, but it was waived during the promotion period, which seems to be continuing still This could potentially be introduced, and may provide a further boost to ARPUs Valuation Methodology Our DCF-based target price of SGD3.7 uses a WACC of 7.3% and terminal growth rate of 2%, with cashflows discounted to FY16F The benchmark index for this stock is MSCI Singapore Risks that may impede the achievement of the target price 1) More aggressive competition in Singapore; 2) limited ability to offer fixed-mobile bundles; and 3) a macro slowdown in Singapore OCBC Securities says ... COMMODITIES | NEUTRAL | As expected, the commodities sector performed relatively poorly against the broader market for most part of 2013, after we maintained our Underweight rating from 2012 Against the STI's 0.4% showing until 6 Dec 2013, the commodities stocks under coverage fell by an average of 6% They had also fallen by as much as 19% at their lowest versus the STI's 6% slide before staging a recovery in late 2H13 Part of the recovery was buoyed by news that economies are slowly recovering, led by the US According to its latest World Economic Outlook (WEO) report out in Oct, the IMF (International Monetary Fund) now expects World Output to grow 3.6% in 2014, up slightly from the likely 2.9% growth in 2013. However, it warns that downside risks remain Some of the "fresh" risks include slowing growth in China, which may affect many other economies, notably the commodity exporters among the emerging and developing economies However, IMF believes slower near-term growth is a worth-while trade-off as there will be positive net effects in the longer term, which should lead to more stable demand for commodities While market sentiment may remain somewhat cautious until investors get a better handle on the magnitude and extent of the Fed tapering (widely expected to take place sooner rather than later), we believe that further signs of a firmer recovery in the US economy could lead investors to adopt a more "risk on" approach And with the valuations of some of the commodity plays still looking relatively inexpensive, we could see potential upgrades for some of them if there is an over-correction in the market Hence we also upgrade our rating from Underweight to NEUTRAL OCBC Securities says... MIDAS HOLDINGS | BUY | TP: S$0.64 We expect firm earnings rebound for Midas in FY14F as high speed railway (HSR) contracts roll in Midas won its first HSR contract (Rmb168m) in over two years in October, as China resumed its HSR development programme, with more likely to come We believe the Group could win a substantial order arising from the recent second rolling stock tender for 314 train sets, or about 2,500 train carriages Over the next two years, we believe a further 700 over train sets could be tendered for, resulting in further wins for Midas in the HSR segment At the same time, we expect (PRC) metro orders to continue flowing in, and overseas orders, which have grown substantially in 2013, to continue to be robust as Midas looks to maintain a more diversified earnings base Maintain BUY, with our 12-month TP raised to S$0.64 (Prev S$0.60), based on 1.2x FY14F P/BV We believe current valuations are attractive for a stock whose earnings are poised for a strong rebound into FY14F and FY15F