M1 LIMITED
B2F.SI
M1 (M1 SP) 3Q15: Tracking Expectations
- M1’s 3Q15 results were in line with expectations. There was modest growth in postpaid mobile coupled with continued strong growth in fibre broadband.
- The stock has suffered a steep price correction but will rebound significantly if there is no fourth mobile operator.
- Maintain BUY. Target Price: S$3.26.
RESULTS
• M1 reported net profit of S$44.9m for 3Q15, in line with our expectation of S$43.4m.
• Handset subsidy remains relevant to Singaporeans.
- M1 added 11,000 post-paid subscribers and its post-paid subscriber base expanded 2.9% yoy. M1 launched mySIM - a SIM-only post-paid mobile plan - during the quarter although the bulk of new and re-contracting customers continue to prefer the usual 2-year service plan bundled with a smartphone. Post-paid ARPU was stagnant at S$61.20 due to seasonality.
• Pre-paid business under pressure.
- Pre-paid subscriber base contracted by 3,000 qoq due to the termination of expired SIM cards issued to MVNO customers. Pre-paid ARPU declined 7% yoy to S$14.60 on lower contribution from voice.
• Sustain growth momentum in fibre broadband.
- M1 added 6,500 fibre broadband subscribers and its fibre broadband subscriber base expanded 22.5% yoy. Fibre broadband ARPU recovered 5.1% yoy due to contribution from enterprise customers. M1 was able to fend off competition from other new entrants to garner more market share.
• Lower volume of iDD calls.
- International retail minutes declined 27.2% yoy to 201m due to lower volume of iDD calls to Bangladesh and India.
• Improvement in EBITDA margin.
- EBITDA margin grew 1.2ppt qoq to 41.4% due primarily to lower handset subsidies (iPhone 6S and 6S Plus were available only on 25 Sep 15). Pre-tax profit increased only 0.4% yoy due to higher depreciation.
STOCK IMPACT
• Fine-tuned guidance for 2015.
- Management has guided low single-digit growth for net profit in 2015 (previously moderate growth). Capex is estimated at S$120m for 2015.
• Differentiating through Data Passport and MySIM.
- M1’s Data Passport services allow customers to use their data bundle overseas at a monthly subscription of S$10 per country. Customers are able to use their smartphones as they do when in Singapore without worrying about incurring hefty roaming charges. Data Passport services are available for Malaysia, Indonesia, Hong Kong, Taiwan, Japan and the US.
- mySIM post-paid plans are SIM-only mobile plans targeted at consumers who prefer to buy their own smartphones. The entry-level plan is priced at S$30 per month (a 28% discount from the usual S$42) and comes with 300 minutes of calls, 1,000 SMS and a 3GB data bundle. Those who commit to a 12-month service contract can get a larger data bundle of 5GB.
• Expanding fixed network services.
- M1 has also expanded enterprise solutions through XGPON connectivity services with speed of up to 10Gbps.
EARNINGS REVISION/RISK
- We maintain our existing earnings forecasts.
VALUATION/RECOMMENDATION
• Maintain BUY.
- We conducted a scenario analysis based on two possible outcomes: scenario A - no new entrant, and scenario B - a fourth mobile operator disrupts the status quo. We attribute a probability of 75% for scenario A and 25% for scenario B. Our probability-weighted target price for M1 is S$3.26.
- If we do not have a fourth operator (scenario A), our target price would be S$3.58 (upside: 23%). If a fourth operator enters the mobile market (scenario B), our target price would be S$2.31 (downside: 20.6%).
SHARE PRICE CATALYST
- M1 provides attractive free cash flow yield of 6.3%.
- Investors flocking back to M1 if there is no fourth mobile operator.
Jonathan Koh CFA
UOB Kay Hian
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http://research.uobkayhian.com/
2015-10-20
UOB Kay Hian
SGX Stock
Analyst Report
3.26
Same
3.26
