M1 Limited - CIMB Research 2015-10-20: On a flat plane

M1 LIMITED B2F.SI

M1 Limited - On a flat plane

Results in line. 9M15 net profit at 73%/73% of our/consensus FY15 estimates.
Service revenue & EBITDA margin were both flattish qoq. The only bright spot continues to be steady growth in fixed services revenue.
FY15-16 yields getting more attractive at 6.9-7.2%. However, concerns over the potential entry of a fourth mobile player is likely to keep a lid on the share price.

3Q15 EBITDA rose slightly by 0.4% qoq (+0.4 yoy), on flattish revenue and margin performance. Core net profit slid 3.1% qoq (-1.6% yoy) due to higher depreciation and amortisation expenses. Result was largely in line, with 9M15 net profit at 73%/73% of our/consensus FY15 estimates.

Mobile service revenue was flat qoq (-0.8% yoy) in 3Q15 as growth in mobile data (+7.1% qoq) was offset by declines in voice (-9.1% qoq) and SMS (-9.6% qoq). Total MOU fell 3.5% qoq (postpaid: -3.8%, prepaid: -3.1%), while RPM shed 5.8% qoq.
Postpaid subscribers on tiered plans rose 1% pts qoq to 73% in 3Q15, while those that exceeded their data bundles inched lower 1% pts qoq to 22%. The average postpaid data usage rose 3.1% qoq (+13.8% yoy) to 3.3GB/month.

Fixed services revenue rose 7.5% qoq (+20.7% yoy), driven by steady growth in fibre customers by 6.5k qoq (+5.3% qoq) to 120k in 3Q15. Fibre ARPU continued to inch up 2.2% qoq due to more corporate customers and stabilisation in retail pricing.
Meanwhile, for the international call services business, revenue continued to slide by 3.7% qoq (-22.1% yoy) due to lower IDD call traffic to low-margin destinations such as India and Bangladesh.

The EBITDA margin on service revenue was steady qoq (+0.6% pts yoy) at 41.0% in 3Q15. Handset subsidies were lower in the quarter but that was offset by higher general and administrative costs, which normalised after some one-offs in 2Q15.
9M15 EBITDA margin of 40.8% was in-line with our full-year EBITDA margin forecast of 41.0% (+0.8% pt yoy). We expect margins to rise further to 42.2% in FY16 and 42.1% in FY17 on the back of gradually lower handset subsidies.

We keep our earnings forecast and DCF-based target price S$3.10 unchanged (WACC: 7.1%).
Due to its share price decline YTD, M1’s yields are becoming more attractive at 6.9%-7.2% for FY15-16. Nevertheless, we see concerns over the potential entry of a fourth mobile player into the Singapore market, putting a lid on its share price performance, at least until after the spectrum auctions in early-2016.

FOONG Choong ChenCFA CIMB Securities | http://research.itradecimb.com/ 2015-10-19

CIMB Securities SGX Stock Analyst Report HOLD MAINTAIN HOLD 3.10 Down 3.10