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3 Possible Reasons Why M1 Ltd’s Major Shareholders Might Be Looking to Sell

The cat is out of the bag.

Last Friday, news broke out that local telco M1 Ltd’s (SGX: B2F) major shareholders, namely, Keppel Corporation Limited  (SGX: BN4)Singapore Press Holdings Limited (SGX: T39), and the Malaysian-based telco Axiata Group Berhad (SGX: KLSE: AXIATA) are undertaking a strategic review of their respective stakes in M1.

The discussion could lead to a significant outcome for M1 as the trio own around 61% of the telco’s shares. There could be a few possible reasons why the trio are considering a sale. Here are three:

1. Singapore Press Holdings’ business is being disrupted

Singapore Press Holdings’ traditional core media business (the publishing of newspapers and magazines) is being disrupted.

In October last year, the company embarked on a strategic review of its Media business. In Singapore Press Holdings’ earnings briefing for the third-quarter of its financial year ending 31 August 2016 (FY2016), its chief executive, Alan Chan, said:

“Given the challenging market conditions, [SPH] has embarked on a comprehensive review of our core Media business. The aim is to better address the evolving needs of our advertising customers and deliver effective, integrated solutions across our various media platforms.”

Singapore Press Holdings has felt the burn of disruption as readers move online and its media platforms grapple with shrinking advertising revenue. In its latest quarter, SPH’s quarterly profit plunged by almost 44%. From its FY2012 to FY2016, SPH’s dividend per share has also declined from 24 cents to 18 cents.

As of 30 November 2016, Singapore Press Holdings has $405.4 million in cash and equivalents and borrowings of almost $1.3 billion. SPH also has $530.6 million in long-term investments and $423.5 million in short term investments. As its media business flounders, Singapore Press Holdings may find the additional funds from a sale of its stake in M1 to be handy.

At M1’s current stock price, it has a market capitalisation of $2 billion. Singapore Press Holdings’ 13% stake in M1 would be worth $260 million. That’s a nice chunk of change.

2. M1 is not a core investment for Keppel Corporation

In Keppel Corporation’s 2015 fourth quarter earnings briefing, its chief executive officer, Loh Chin Hua, commented that M1 is not a core investment for the company:

“We have said before, M1 is not a core investment for us. But when we sell would depend on many things. In the meantime, we are quite happy with the contribution that M1 is making to Keppel T&T and to the Group.”

Keppel Corporation, which holds a 19.1% stake in M1, houses the investment inside its 80%-owned subsidiary, Keppel Telecommunications & Transportation Ltd (SGX: K11).

During the same briefing, Loh also commented that Keppel Corporation does not have a cash problem with its balance sheet. However, investors should know that Keppel Corporation is holding a net debt position of almost $7 billion as of 31 December 2016. The company’s dividend in 2016 was also slashed by 41% when compared to 2015.

3. M1 is facing disruption

In 2016, M1’s mobile service revenue fell by 6% as it struggled against lower usage, a data pricing war, and the looming arrival of the fourth telco,TPG Telecom. The dimming prospects may have prompted M1 to move outside its core mobile business. In M1’s 2016 second quarter earnings briefing, the company’s chief commercial officer, Lee Kok Chew, said:

“We are investing in new technologies and capabilities and building up a portfolio of digital solutions to enhance our service proposition and cater to changing customer needs.”

Investments and dividends will be competing priorities for the local telco as it attempts to transition its business. M1 ended 2016 with a net debt position of $390 million, up from $344 million a year ago.

Given the challenges, it is possible that M1’s major shareholders do not have an optimistic view on its business as it stands.

Meanwhile, M1’s chief financial officer, Nicholas Tan, had resigned last Friday to pursue other interests. Lee Kok Chew will be taking over CFO duties on top of his current role.

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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 writer Chin Hui Leong doesn't own shares in any company mentioned.