Keppel-SPH buyout could strengthen M1's MVNO position

This could help the telco which is facing a decline in its mobile customer base, marked by a 4.1% to 1.96 million in Q4.

It took five months  for Axiata Group to quit its position as M1's largest shareholder and sell its 28.6% stake for $550m (MYR1.65b) in a buyout offer from Keppel Corp and Singapore Press Holdings' (SPH).

Konnectivity, the Keppel-SPH joint venture, can now take on its strategies to leverage its mobile virtual network operator (MVNO) offering. It has established solid links with Circles.Life and sealed marginal gains in its market share, CMC markets sales trader Oriano Lizza told Singapore Business Review.

Also read: Singapore's telcos turn to MVNOs as a defensive strategy

Embattled M1 is still on the doldrums as its profits crashed 30.4% YoY to $25.7m in Q4 2018. The telco reported a 4.1% slip in its mobile customers to 1.96 million in Q4. The figures were combined with those of its MVNO partner Circles.Life.

“I think albeit a bitter pill to swallow for Axiata as a long term investor of M1, the company’s decision to handover the reigns comes at an integral junction in M1 life cycle as a business considering the ever evolving telecommunications landscape,” Lizza commented, adding that the new acquirer can assist Singapore's third biggest telco in enhancing its digitalisation plans.

Lizza thinks that Keppel and SPH will move to consolidate M1’s positioning in the market share before laying down a growth strategy with its current product offering. He added that a move into TV and media streaming services could aid its recovery.

Also read: Keppel-SPH buyout offer extends lifeline to embattled M1

Meanwhile, Keppel can use M1’s home services to support its electricity distribution business, according to Fitch Solutions telecommunications analyst Kenny Liew. “Convergence and improving service delivery will be the next area of focus, as M1, when it grows to become a more diversified and attractive player, will have to stop relying on price to maintain market share,” he explained.

Moreover, Liew believes that M1 will likely get a boost through a clearer strategy from less shareholders.

“Axiata leaving will see the Singapore market lose a well-experienced telecoms player and a major foreign investor. Axiata, however, has been facing a challenging operating environment in foreign markets such as Bangladesh and Indonesia, so it may be keen to divest its stake whilst M1 still commands a considerable valuation to fund its interests in these other markets,” Liew said.

For Lizza, Axiata may have considered the heating competion as well as the output required to remain competitive in the telco space. "The firm [Axiata] was also looking to recapitalise and shift capital to focus on its infrastructure projects within the groups IT and network projects, with an expected dividend to be paid out to reassure investors following weak Q4 results," he explained.

The Malaysian telco group noted that it would book an estimated gain of $31.89m (MYR126.5m) from the transaction.