5G Network Enhancement And T Star Merger Will Attract High-Value Users In 2025

Key Takeaways

• Merger with T Star drives cost savings and increased profitability through network integration and revenue growth via 5G and unique bundles.
  
• Momo's strategic expansion in third-party listings and retail media network will increase user engagement and boost revenue, improving EBITDA margins.
  
• Rising financing expenses and investment pressures alongside softening e-commerce trends may challenge Taiwan Mobile's profitability, cash flow stability, and financial flexibility.

Catalysts

Provides wireless communication services in Taiwan, Republic of China, and internationally.

• The merger with T Star has enabled faster-than-expected network integration and significant cost savings, which are expected to drive continued synergies and profitability improvement in 2025. This will positively impact net margins and earnings.
  
• The company is prioritizing ARPU growth through 5G conversion and cross-selling/up-selling existing T Star users, supported by superior network quality and unique bundle offerings, which should drive revenue growth.
  
• The enhancement of the 5G network, including utilizing additional spectrum from the TST merger, aims to attract high-value 5G users, potentially boosting telecom-related revenues and long-term customer value.
  
• Momo's strategic focus on expanding third-party listings and its retail media network (RMN) is likely to increase active users and gross merchandise value, leading to higher revenue and contributing to EBITDA margin improvement.
  
• Strong free cash flow generation, driven by improved telecom EBITDA and e-commerce performance, allows for debt reduction and potential shareholder returns, enhancing overall financial stability and net income growth.

Taiwan Mobile Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Taiwan Mobile's revenue will grow by 8.0% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 6.9% today to 6.7% in 3 years time.
• Analysts expect earnings to reach NT$16.8 billion (and earnings per share of NT$5.69) by about March 2028, up from NT$13.8 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 26.0x on those 2028 earnings, up from 25.5x today. This future PE is greater than the current PE for the TW Wireless Telecom industry at 25.8x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.19%, as per the Simply Wall St company report.

Taiwan Mobile Future Earnings Per Share Growth

Risks

• The Y-o-Y decline in CATV revenue due to content reduction following Disney's exit could negatively impact overall revenue growth and create challenges in maintaining net margins within the broadband division.
  
• The increase in financing expenses at the non-operating level, resulting from the issuance of new shares to T Star shareholders, might pressure net income and earnings, reducing overall profitability growth.
  
• The higher cash CapEx in 2024, driven by investments in network consolidation with T Star, could strain free cash flow and affect the company's ability to maintain its historical growth rate of free cash flow, impacting financial stability.
  
• Softening online shopping trends may impact momo's growth, potentially affecting its revenue contribution and net margins, which could lead to diminished expectations for e-commerce growth.
  
• The increase in short-term gross debt due to planned repayments of corporate bonds might burden near-term liquidity and cash flows, impacting financial flexibility despite the issuance of convertible bonds.

Valuation

• The analysts have a consensus price target of NT$124.286 for Taiwan Mobile based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NT$137.0, and the most bearish reporting a price target of just NT$115.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be NT$251.4 billion, earnings will come to NT$16.8 billion, and it would be trading on a PE ratio of 26.0x, assuming you use a discount rate of 5.2%.
• Given the current share price of NT$116.5, the analyst price target of NT$124.29 is 6.3% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.