Simba-M1 deal: Better to be a consumer than an investor in the local telecoms space for now

Business Times

2 days ago

[SINGAPORE] When I began working in Singapore back in 2000, choosing a mobile phone service provider was not hard. Many people told me Singtel had the most reliable coverage across the island, and I just went with it.
Some years later, after a visit to a Singtel outlet left me feeling a bit miffed, I began looking for an alternative. While M1 had been around longer, StarHub was the obvious choice for me at that point. As I was already subscribing to its home broadband and pay-TV services, adding a mobile phone service meant more bundled discounts.
Over the past year, I have been wondering whether it's time for another change. For one thing, almost all the TV content I watch these days is from Amazon Prime, Disney+ and Netflix.
While StarHub has gone out of its way to make itself the platform through which I consume and pay for these streaming services, I'm not sure I would be any worse off if I went back to accessing them directly through their individual apps on my TV. After all, that's how I use these streaming services on my laptop and phone.
More importantly, there are some very attractively priced SIM-only mobile phone plans available now. For instance, Singapore's fourth mobile phone operator Simba Telecom currently offers 400 gigabytes of data, 5G network access, and unlimited local calls for just S$10 a month, according to its website.
But, wait. Aren't these plans only for the most budget-conscious consumers? How reliable is the service?
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As one of my colleagues put it: 'For just S$10 a month, it's worth taking the risk.'
Budget carrier strategy
One could argue that mobile telephony has gone through a similar evolution as air travel. From being a luxury that only a few could afford, it has gradually become available to almost everybody.
In that context, Simba's strategy seems to be that of a budget carrier: carving out a segment of a mature market for itself by targeting price-sensitive consumers who have not been well served by more established players.
Judging from the headline financial numbers of Tuas Limited, the Australian Securities Exchange-listed company that owns Simba, this market segmentation strategy has been paying off.
For the six months to Jan 31, 2025, Tuas reported a 33.7 per cent year-on-year rise in revenue to S$73.2 million, and a 47.7 per cent increase in earnings before interest, tax, depreciation and amortisation (Ebitda) to S$33.1 million.
Tuas also achieved a maiden positive half-year net profit after tax of S$3 million.
Will Simba continue focusing on the most price-sensitive consumers as it gains scale? Or, will it change tack? How will its competitors respond?
We could be about to find out. Before the market opened on Aug 11, Tuas said Simba had agreed to acquire M1's telco business for an enterprise value of S$1.43 billion. In the 12 months to Apr 30, the acquisition target had revenues of S$806.1 million, and Ebitda of S$195.4 million.
More intense competition?
In a presentation deck, Tuas described the purchase of M1 as a 'transformational opportunity' that will strengthen Simba's position in the mobile phone sector, accelerate its push into home broadband, and provide it with an established enterprise platform.
Some analysts have said the Simba-M1 combination will lower the overall 'competitive intensity' within the telecoms sector, as there will be fewer players vying for customers.
Some market watchers have also suggested that the merged Simba-M1 entity may struggle with integration issues, which might result in StarHub and Singtel capturing the spoils of any reduced competitive pressure in the industry.
My own view is that Simba-M1 will be a fearsome competitor. With its increased financial heft, and two telco brands in its fold that target very different segments of the market, it could take the fight for market share right to the door of its competitors.
Tellingly, StarHub lowered its earnings guidance last week in anticipation of adopting a more aggressive commercial stance in the months ahead. Instead of aiming for 'stable' Ebitda in 2025, the company is now targeting to achieve 88 to 92 per cent of last year's Ebitda.
'This revision reflects a deliberate strategic decision to preserve competitiveness and defend market share while continuing to invest in long-term growth levers,' StarHub said.
Telecoms industry consolidation
For me, the consolidation unfolding in the telecoms sector is reminiscent of the spate of bank mergers that took place some 25 years ago. In particular, the excitement among investors about UOB after it outflanked DBS to acquire Overseas Union Bank (OUB) comes to mind.
Investors seem similarly exuberant now about Tuas, after news broke that Simba will acquire M1. Its shares jumped 29.6 per cent on Aug 12, and climbed further over the days that followed. The stock closed Friday (Aug 15) at A$7.61 – up 38.1 per cent for the week.
This rally seemed remarkable to me, given the funds Tuas needed to raise to acquire M1. On Aug 12, the company said it had raised A$385 million through an institutional placement of about 69.9 million new shares at A$5.51 each.
Tuas had also said on Aug 11 that it plans to raise A$50 million from its existing shareholders through a share purchase plan (SPP). These new shares will be priced at the lower of the institutional placement price and a 2 per cent discount to Tuas' five-day volume weighted average price up to the closing date of the SPP.
By contrast, StarHub – which was widely expected to acquire M1 – suffered a 4.9 per cent sell-off on Monday . The stock closed Friday at S$1.18, down 3.3 per cent for the week.
StarHub has made it clear, however, that it plans to be an active player in the consolidation of the telecoms sector. On Aug 12, the company said it had purchased the remaining stake in MyRepublic's broadband business that it did not already own for S$105.2 million.
StarHub's top officials also said last week that the group is on the lookout for more acquisitions, even as it defends market share across its businesses.
What does all this mean for investors? While the investments the Singapore telcos are making could take them in interesting new directions, it seems unlikely to me that consumers will stop shopping around for the lowest prices for certain commoditised products, such as SIM-only plans.
There is also no guarantee that the players leading the current consolidation will deliver the highest growth and profitability over the long term. In the banking sector, for instance, some market watchers may remember that UOB's bid for OUB was projected to make it the largest local bank by asset size.
The way I see it, until all the hype about consolidation subsides, it could be better to be a consumer rather than an investor in the local telecoms space. Rather than risk any money on telco stocks, I'm just going to hunt for a cheaper mobile phone plan.