M1 - OCBC Research 2015-10-20: 3Q15 earnings in line with forecast

M1 LIMITED B2F.SI

M1: 3Q15 earnings in line with forecast

 3Q net profit 0.2% below forecast

 Sees low single-digit earnings growth

 Attractive 6.4% yield for FY15

M1 reported its 3Q15 results last evening, with revenue climbing 11.0% YoY (+0.3% QoQ) to S$277.6m, or about 2.8% above our estimate, again driven mainly by higher handset sales of S$73.0m (+68.8% YoY, +0.5% QoQ). But thanks to a better product mix (probably more of Samsung than Apple handsets), EBITDA grew 2.6% YoY (+3.6% QoQ) to S$56.0m, while net profit inched up 0.8% YoY (+1.4%) to S$44.9m, or about 0.2% shy of our forecast.

9M15 revenue jumped 16.3% to S$849.3m, meeting 80% of our full-year forecast, while net profit rose 2.8% to S$134.9m, or about 75% of FY15 estimate.

Going forward, M1 has fine-tuned its guidance for this year to achieving “low single-digit” earnings growth versus its previous guidance of “moderate” growth. But management clarified that it was not a downgrade, as their moderate range has always meant to be within the single-digit range.
Instead, M1 said the latest guidance comes from greater clarity after three quarters of operations for the year. Management also said that it will continue to focus on delivering better customer experience and value.
In any case, we have modeled an earnings growth of around 2.6% for this year, hence it is still in line with our expectation.

And 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 DCF-based S$3.66 fair value, supported by a more attractive 6.4% yield; this following the drop in share price due to the spectre of rising interest rates as well as the emergence of a new entrant here. However, the market seems to be reducing the odds of a hike in US interest rates in Dec, given the splotchy growth outlook around the world.
In addition, we believe that the 4th telco is not a “done deal”, given the high capital outlay for rolling out its own network coverage, especially in a highly saturated market like Singapore.

Carey Wong OCBC Securities | http://www.ocbcresearch.com/ 2015-10-20

OCBC Securities SGX Stock Analyst Report BUY Maintain BUY 3.66 Same 3.66