Mobile One (M1) Fundamental & Intrinsic Value

Base on Q3 2009 (end of Sept, 2009) financial report:

• PE = 11.03
• Current Price = 1.85
• Dividend Yield = 7.24%
• NAV = $0.26
• Net Earning = 20% (21.3% in 2008)
• Current Ratio = 0.23 (0.48 in 2008, Similar industry is 0.55). M1 borrowed S$292.5M in this financial year.
• ROA = 18.68% (Base on 2008 Full Year)
• ROE = 67.3% (base on 2008 Full Year)

 

Stock Background

• Historical high = about $2.268
• Current Price = $1.85

Intrinsic Value Calculation

 PE Model

• Fair value PE = 15, intrinsic value= $2.52 (base on EPS $0.16771)
• However, M1’s historical high PE is 11 and never reach PE = 15 before. Thus, it is unrealistic to use PE = 15 to calculate the intrinsic value.
• Base on PE = 11, intrinsic value (base on EPS $0.16771) = $1.84
• EPS Growth Rate = 3.6%
• PEG = 3.09 (Overvalue!)

 DCF Model

• I am unable to calculate the intrinsic value because M1 Free Cash Flow is very inconsistent and have negative growth for past 3 years.

 Discounted EPS Model

• EPS Growth Rate = 3.6%
• Discount Rate = 5%
• 2008A EPS = $0.16771
• Intrinsic Value = $1.56

 Regardless of which method to calculate the intrinsic value, M1 is over value (base on Discounted EPS Model and PEG ratio). The top line (Revenue) and the bottom line (Profit) are not growing significantly year over year. M1 is also losing out to her competitors SingTel and StarHub on the TV bundling services. Furthermore, the stock price moves sideway since the IPO.

 

Summary of my reasons for not to buy M1:

1. No significant competitive advantage to compete with SingTel and StarHub in the long term.
2. Sales & Profit are not growing significantly.
3. Stock moves sideway so no great upside potential for capital gain.

I am avoiding M1 after this analysis because there are other better Telco companies to invest in.