Wednesday, 20 January 2016

Is M1 oversold? Is the sky falling?

The market is ruled by emotions and sentiments nowadays. Nobody reads and analyse financial reports. Fundamental analysis? Nah! Who has time for that mumbo jumbo! We prefer to let emotions rule our heads instead of basing our investment decisions on actual hard figures.

A cursory glance at some local investment forums and you would see hysterical comments like "Oh no! I was vested in M1 at XXX price. Should I cut loss?" >____<

I have provided some points on why the fear of the 4th telco is blown out of proportions in one of my previous posts. For those newbie investors who are facing a dilemma in choosing between cutting loss, averaging down or holding, I shall do the 'homework' for u.

Present scenario
-Annual earnings: 19 cents
-Annual dividend: 15.3 cents
-Dividend payout ratio: 80%
-Yield: 6.4%

Expected scenario (10% drop in earnings after the 4th Telco has commenced operations for a few years)
-Annual earnings: 17.1 cents
-Annual dividend: 13.7 cents
-Dividend payout ratio: 80%
*Assuming investors want a 6% yield at least, the price will be $2.28

See. Not so difficult right?
Now, armed with this information, you can make a more educated decision.


Everyone hates homework
DK

16 comments:

  1. Hi DK!
    I agree with you, a lot of people "invest" with emotions.

    To be slightly nit-picky, a 10% market share loss (presumably affecting the revenue) would have a >10% effect on the earnings/bottom line.

    However, since you've assume that earnings remained stagnant for the next 2 years, I guess 17 cents earnings is still "accurate" (net of all effects).

    Cheers!

    ReplyDelete
    Replies
    1. Hi,

      Thanks for the input. Yes, I agree that a 10% market share loss will result in a >10% drop in earnings. And judging from the price movement yesterday, the smart money is targeting $2.20

      That's why I like the comments section. Learn something today.^^

      Delete
  2. I am actually doubtful that the 4th Telco will materialise given the market situation and heavy financial investment needed.

    ReplyDelete
    Replies
    1. Hi Unknown,

      IMO, the 4th Telco should be bidding for the spectrum. According to IDA, they are probably getting it at a discounted price. So, I am quite sure 4th Telco will start operations. But whether they will survive is a different matter...

      Delete
  3. Interesting. With both Singtel and Starhub falling as well, maybe investors want something more with M1, perhaps 7% yield.

    I'll certainly be on the mix if M1 should hit $2 one day, perhaps never perhaps it's soon.

    ReplyDelete
    Replies
    1. Hi B,

      Yes, I think M1 is heavily battered bcos the bulk of its revenue comes from mobile business which the 4th Telco will be competing in. Furthermore, it is the smallest Telco in Singapore with the least resources. One silver lining is that it is branching out into the corporate fibre sector which I think the 4th Telco will need some time to catch up on.

      $2 is definitely a strong possibility...

      Delete
  4. Hi DK,

    I'm new to buying stocks and would just like to ask you if you could share with me how you came up with the calculations?

    Thanks in advance!

    ReplyDelete
    Replies
    1. Hi bao,

      I got the earnings and dividend figures from M1's latest financial report. You can get the info from M1's website too.

      The 10% market share loss is provided by some bank analysts over the past few months. The consensus is that the 4th Telco will grab 10% local market share over a few years.

      Based on these info, I just did some common-sense projected calculations.

      Cheers!

      Delete
  5. Hi DK

    Keep up the good work. I see that you are starting investing since 2013. Are u sitting on quite a bit of unrealized loss now? Are u planning to average down?

    ReplyDelete
    Replies
    1. Hi Alfred,

      The unrealised loss is manageable due to the dividends received.

      If valuations get really cheap, I will consider building up positions in some stocks. As for now, my main focus is on the banks.

      Cheers!^^

      Delete
  6. Hi DK,

    When I bought into M1, it was 2.66 using SRS.

    I am using 13c as dividend bcos that is the lowest in the last 5yrs and I see 4.9% yield. Tink... I hit buy! When it floor at $2, I will execute more than the last round!

    Still can't feel my heart on its current 20% decline! so still ok! :d

    ReplyDelete
    Replies
    1. Hi Rolf,

      I agree with using 13cents as the future dividend payout. I am probably a buyer at $2.20 or below. We just have to wait how the 4th Telco eventually affect the incumbents.....

      Delete
  7. everyone hates homework but always have a good friend who will share :P

    Thanks for sharing. Seems like you and I started our blog around the same time but you are the more hardworking friend :P keep blogging and thanks for sharing your insights

    ReplyDelete
    Replies
    1. Hi Potatoish,

      Ah.....those good old days of copying homework from our smarter classmates. LOL...

      Thanks for the support!^^

      Delete
  8. hi DK,

    nice blog, nicer dividends =)

    whats your take on starhub?
    i think its more over sold than m1..

    ReplyDelete
    Replies
    1. Hi foolish chameleon,

      Thanks for the compliment!:)

      Starhub is facing similar headwinds as M1 in the sense that it derives almost all its revenue from the Singapore market. The cable TV segment does not seem to seeing any meaningful growth in recent years with Netflix as competition.

      Unless Starhub is able to improve its ability to monetise data usage, I highly doubt the 20cents annual dividend can be maintained after the 4th Telco entry. The price still has more room to fall in 2017 onwards.....

      So, be cautious. Good luck! I am still holding my Starhub for now, but not adding.

      Delete