M1 - RHB Research 2015-10-20: mySIM To The Fore

M1 LIMITED B2F.SI

M1 - mySIM To The Fore

9M15 results met expectations as the amortisation of accrued handset revenues continued to crimp postpaid topline while prepaid revenue remained sluggish.
On a brighter note, its new SIM-only plan has been well-received, which should help to reduce the overall handset subsidy bill.
Maintain BUY and SGD3.72 TP (WACC: 7.5%, TG: 1.5%, 28% upside), given M1’s dividend yield of >7% and EV/EBITDA valuations that have already priced in competitive risks.

M1’s 9M15 core earnings rose 2.2% YoY (3Q15: -3.1% QoQ) to SGD134.3m, making up 74% of our forecast but a slightly weaker 72% of consensus. Despite the 1.1% YoY contraction in service revenue, EBITDA expanded 2% YoY on lower traffic (weaker international calls/roaming revenue) and subscriber (sub) acquisition costs (SAC). Handset sales were flat sequentially, ahead of new smartphone launches at the tail-end of 3Q15.

Postpaid revenue was flattish (-0.3% QoQ) despite postpaid subs growth of 3%. This was due to M1’s policy of amortising accrued handset revenues as part of the fair value accounting on the iPhone, which offset stronger data revenue from customers exceeding their data bundles.
Prepaid revenue remained sluggish on voice decline and lower international direct dialling (IDD) traffic. Average data traffic consumption rose to 3.3 gigabytes (GB)/subs/month in 3Q15 (3Q14: 2.9GB/subs/month).
M1 said its new SIM-only plan, mySIM, has been well-received since its launch in July, with new customers making up 70% of sign-ups and over two-thirds taking on contracts. While the new plan is ARPU-dilutive, M1 should gain from lower handset subsidies moving forward.

Our forecasts are unchanged. M1 has tightened its guidance and now expects full-year earnings to grow by “low single-digit” from “moderate growth”. Stronger-than-expected competition and higher-than-expected capex remain the key earnings risks.

The stock is backed by over 7% dividend yield, the highest among its local peers and one of the highest in the region. We believe the sharp 20% de-rating in its share price has factored in the risks of a potential new entrant, the outcome of which remains uncertain.

Singapore Research RHB Securities | http://www.rhbgroub.com/ 2015-10-19

RHB Securities SGX Stock Analyst Report BUY Maintain BUY 3.72 Same 3.72