What Investors Should Know About M1 Ltd’s Outlook For Its Business

M1 Ltd  (SGX: B2F) is an easily recognisable company in Singapore, given that it’s our island nation’s third largest operational telco.

In mid-March, M1 published its annual report for the year ending 31 December 2017. Given that reading an annual report is one of the best ways to keep up with a company’s developments, I decided to go through M1’s latest annual report to understand the company’s prospects, and how it had performed in 2017.

Generally, when reading an annual report, I will pay close attention to the letter to shareholders that the company’s chairman and/or CEO writes. In this article, I will look at an area that I found to be interesting while reading the latest shareholders’ letter: Management’s thoughts on the outlook of the company’s business.

To begin with, M1’s management bluntly stated that “in the near term, market conditions will remain challenging.” Management went on explaining why that’s so:

“The anticipated entry of new mobile service providers in 2018 is likely to ramp up competitive intensity.”

In other words, M1 expects that TPG Telecom will finally join the party in 2018.  In late 2016, the Australia-based TPG Telecom was awarded Singapore’s fourth telco license. TPG Telecom announced last month that it expects to launch its service here in the second half of this year.

M1 also provided some hints on how it plans to address the challenges it’s facing (emphases are mine):

“As a highly customer-centric company backed by quality assets and strong capabilities, M1 is poised to compete. We will continue to improve our services, deepen our segmented offerings and deliver superior customer experience to attract and retain customers.”

I  think it would be interesting to observe whether M1’s strategy of competing based on the quality of its service offerings and superior customer experience will be able to offset a significant disadvantage that it lacks as compared to its bigger peers – economies of scale. As mentioned earlier, M1 is the third largest operational telco operator in Singapore. The first and second are Singapore Telecommunications Limited (SGX: Z74) and StarHub Ltd (SGX: CC3), respectively.

In an industry that offers commodity/utility-type of services, the most important, and in some situations, the only competitive advantage that a company has over its competitors is the scale of its operations. With scale, a business can become the lowest cost producer, which in turn, allows it to charge the lowest price possible while still maintaining a healthy profit.

Unfortunately, M1 has the smallest scale among the three telcos. Thus, it will be interesting to see how M1 plans to play in this increasingly competitive market, given that TPG Telecom has yet to make an entrance.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.