M1 Ltd - OCBC Investment 2018-01-24: Slight Disappointment In FY17 Results

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M1 LIMITED B2F.SI

M1 Ltd - Slight Disappointment In FY17 Results

• Met 95% of our FY17 estimate.
• 11.4 S-cents in total dividend for FY17.
• Maintain HOLD.

EBITDA margin diluted by strong growth in fixed services 

• M1 Ltd’s (M1) 4Q17 revenue fell 2.1% y-o-y to S$307.2m driven mainly by weaker handset sales (-18.5%) and international call services (- 9.2%) but partly offset by fixed services (+33.0%) and mobile post-paid (+5.8%) revenues. 
• Fixed services revenue growth was driven by a 18.1% y-o-y increase in customer base supported by a 4.4% increase in ARPU, while mobile revenue growth was mainly driven by higher post-paid customer base and a slight YoY decline in ARPU. Handset sales fell largely on lower sales volume. 
• 4Q17 operating expenses fell 3.6% y-o-y to S$266.7m largely due to lower handset costs on lower volume. Consequently, EBITDA increased 3.3% y-o-y to S$74.4m. However, NPAT fell 2.5% y-o-y to S$31.0m as taxation jumped 35.8% to S$6.6m. 
• For FY17, revenue rose 1.0% y-o-y to S$1071.1m driven mainly by fixed services. However, operating expenses grew at a faster pace by 2.2% to S$900.0m due to higher wholesale costs of fixed services on larger customer base. Consequently, FY17 NPAT declined 11.5% y-o-y to S$132.5m and EBITDA fell 3.1% to S$302.4m, both of which formed ~95% of our FY17 forecasts, respectively.

Exploring deeper collaboration on network sharing 

• Looking ahead to FY18, M1 guided for capex to be ~S$120m (FY17: ~S$151m) and intends to maintain its 80% payout ratio dividend policy. In addition, we expect M1 to continue to deliver the multi-year corporate fixed services projects, while working to clinch new ones. 
• In addition, over the medium to longer-term, M1 will continue to build its foundation to prepare for future 5G network roll-out, as well as continue to explore deeper collaboration, especially with Starhub on network sharing, in order to realize capex savings progressively. 
• M1 has also said it will continue to scale up its ICT capabilities and solutions over connectivity to capture opportunities relating IoT and Smart Nation initiatives.

Expects earnings to only bottom-out next year 

• All considered, with the impending entry of new competitors (i.e. TPG and MVNOs), we expect earnings to only bottom-out in FY19. Hence, as we roll-forward our valuations but lower our FY18F EPS by ~4%, our Fair Value increases from S$1.65 to S$1.70. 
• Maintain HOLD.

Eugene Chua OCBC Investment | http://www.ocbcresearch.com/ 2018-01-24

OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 1.70 Up 1.650