SINGAPORE (Dec 27): RHB is keeping its “neutral” call on M1 with lower target price of S$2.05 given the emergence of TPG Telecom, dubbed a “potentially disruptive but likely rational” fourth mobile player by the research house.

In a Dec 23 report, RHB says M1 exhibited the largest revenue/EBITDA share decline over the past two years but has the biggest exposure to the domestic market with a lack of bundling strategy to retain subscribers.

The research house says M1 is highly susceptible to revenue and EBITDA pressure from TPG as M1’s mobile segment makes up 80% and an estimated 70% of the group’s 9M16 service revenue and EBITDA respectively.

M1’s bigger exposure to the more price-sensitive segment of the market could see revenue pressure intensify from FY18 as TPG launches new and attractively priced plans.

Already, existing competition from Singtel and StarHub and structural roaming revenue pressure in the industry have contributed to above-industry average decline in mobile revenue of 7% y-o-y in 3Q16 (9M16: -4% y-o-y).

M1 also posted the largest decline in revenue and EBITDA share in the industry over the past two years of 1ppts and 2.1 ppts respectively.

“We cut our FY18/19 core earnings forecasts by a further 10.1%/16.8% after building in stronger ARPU dilution of 20-23% (vs. 15-20% previously) and margin pressure from greater retention activities,” says RHB.

M1 had earlier downgraded FY16 earnings guidance after the release of its 3Q16 results with full-year earnings set to contract by “low to mid-teens” vs “single digit decline” previously.

However, RHB notes that M1’s focus on smart nation projects, cloud computing and internet of things (IoT) could help mitigate pressure on revenue and earnings in the medium to longer-term.

Meanwhile, M1 is still the subject of M&A talks in the market over the past year. This stemmed largely from potential corporate exercises involving its two major shareholders – Keppel Telecoms which holds a 19.5% stake and Axiata Group which holds a 28.2% stake.

Axiata was previously reported to be keen on raising its stake in M1 but management had denied talks of any negotiations.

As at 1.08pm, M1 is trading 1 Singapore cent higher at S$1.92.