OCBC Investment Research 2015-07-21: M1 - 2Q15 results came in as expected. Maintain BUY.

M1: 2Q15 results came in as expected 

  • 2Q net profit 0.7% above forecast. 
  • Eyes moderate earnings growth. 
  • Decent 5.7% yield for FY15. 

2Q15 results within expectations 

  • M1 reported its 2Q15 results last evening, where revenue jumped 15.5% YoY (-6.1% QoQ) to S$276.8m, or about 0.7% above our forecast. 
  • Handset sales remained fairly robust at S$72.7m (versus S$90.4m in 1Q15) as demand for the new Apple iPhone 6 and 6+ likely remained strong. 
  • But EBITDA eased 0.4% YoY (-2.3%) to S$55.2m, while net profit rose 0.8% YoY (-3.0% QoQ) to S$44.3m, also 0.7% above our estimate. 
  • For 1H15, revenue rose 19.1% to S$571.7m, forming about 54% of our full-year forecast, while net profit grew 3.8% to S$90.0m, or about 50% of our FY15 estimate. 
  • M1 declared an interim dividend of S$0.07/share, unchanged from the year-ago period. 

Keeps moderate earnings growth outlook 

  • As expected, M1 has kept its previous guidance of achieving “moderate” earnings growth this year, which we understand to be within the single-digit range, driven by continued growth in data usage. 
  • M1 highlighted that 72% of its postpaid customers are on tiered plans (versus 68% in 1Q15), while 23% of these subscribers exceeded their data bundles (versus 20% in 1Q15). 
  • M1 also saw a modest improvement in fiber ARPU in 2Q15 to S$46.3/month, driven by corporate customers, but competition for the home segment is likely to remain stiff. 
  • The telco expects to spend S$120m as capex this year, unchanged as well from its previous guidance. 

Maintain BUY with unchanged S$3.66 fair value 

  • As the numbers were mostly in line with our forecast, we opt to leave our FY15 estimate unchanged for now. 
  • We also maintain our BUY rating with an unchanged S$3.66 fair value, supported by an attractive 5.7% yield. 
  • While the IDA appears to be keen on introducing a new mobile operator into the market, it is not a given due to the high capital outlay for rolling out its own network coverage. 
  • As such, the recent fall in price due to these concerns may be somewhat premature; although the spectre of rising interest rates is likely to continue to weigh on yield stocks. 

(Carey Wong) 

Source: http://www.ocbcresearch.com/