M1 - Maybank Kim Eng 2015-10-20: Growth Slowing, Guidance Cut

M1 - Maybank Kim Eng 2015-10-20: Growth Slowing, Guidance Cut M1 LIMITED B2F.SI 

Growth Slowing, Guidance Cut 

  • Below expectation 3Q15. We cut FY15 forecast EPS 7% and TP 14% to SGD3.13. Maintain HOLD on dividend yield of 6%. 
  • Margins rose, but revenue growth dipped into negative territory for the second quarter running on lower ARPU. 
  • Expect prices to continue declining as telcos turn more competitive ahead of fourth telco’s entry.

What’s New 

  • EPS for 3Q15 was below expectation, accounting for only 69% of our full year FY15 estimate. Further, M1 has reduced its full year guidance from “moderate” to “low single digit” growth. It had maintained its guidance unchanged since 2013 when it reported c.8% growth for FY13 and FY14. We reduce our FY15-17 forecasts by 7-15% and DCF-based TP 14% from SGD3.65 to SGD3.13. Maintain HOLD. Dividend yield of 6% should provide downside support. 

What’s Our View 

  • EBITDA margin of 42.3% was the highest since 2011, boosted by the success of the SIM-only MySIM plans launched in Jul 2015. Further, 73% of net-adds in this segment were new customers and 63% took up 12-month contracts. Without the need to provide handset subsidies, M1 enjoyed better profit margins. 
  • With the lack of revenue growth however, better margins can only hold up the bottom line for so long. Service revenue fell 1.2% YoY, the second consecutive quarter of decline, as both postpaid and prepaid revenue fell, leading to a 0.8% fall in mobile revenue. Postpaid subscribers grew by 11k QoQ, driven by its SIM-only MySIM plans. However, the decline in ARPU accelerated for the third consecutive quarter on the dilutive impact of its newly-launched shared-plans. There was also no respite for prepaid revenue, which continued to fall along with subscriber-count and ARPU. 
  • We think this trend is likely to continue as the industry is highly saturated. With M1 having launched the first “cheap” salvo, mobile prices should continue to fall ahead of the 4th telco’s entry. Ironically, this would allow IDA to make telecoms more affordable in Singapore even before the 4th telco enters the market.

Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2015-10-20
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 3.13 Down 3.65