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Is M1 Ltd Set For Explosive Growth Ahead?

M1 Ltd (SGX: B2F), the smallest of the three main telecommunications service providers in Singapore, used to be a pure mobile network provider before 2009.

Since then, the company has ventured into the highly profitable enterprise business space and management views this segment as something with huge growth potential. This view is borne out in the numbers too: M1’s enterprise business contributed revenue of S$61.6 million in 2013, an increase of more than 100% over the previous year.

At the end of October this year, M1 announced that it has built a new data center and also has new service offerings catered to enterprise customers. The data center, housed near M1’s headquarters in the International Business Park, will be able to support more than 900 high-power density racks. With the growing demand for cloud-based services and the advancement of the internet, it seems that there is indeed huge growth potential in the enterprise space.

That said, M1 is facing formidable competition given that it’s still a very small player in the space compared to both its industry peers Singapore Telecommunication Limited (SGX: Z74) and Starhub Ltd (SGX: CC3).

In the first nine months of 2014, M1’s revenue from its fixed services, which includes both fixed services for retail and enterprise customers, came in at only S$51 million or 8% of its overall revenue. Meanwhile, SingTel had recorded revenue of S$1.6 billion for its enterprise segment in its latest quarter alone, according to The Edge Singapore. StarHub’s fixed network services segment also achieved revenue of S$95.2 million in the telco’s latest quarter alone. All these helps put into perspective the gulf in size between M1’s enterprise segment and that of its peers.

Foolish Summary

Faced with intense competition in the mobile segment, an entry into the enterprise segment might be a wise choice for M1. That’s because enterprise-related businesses tend to provide much higher margins and enterprise customers also tend to stick with one service provider for a longer period due to the high switching costs involved.

If M1 is able to grow this segment as it has done so for the past few years, the telco’s enterprise business might be a strong earnings contributor in the not too distant future.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim does not own shares in the companies mention above