M1 Limited - CIMB Research 2016-01-19: FY15 Earnings in line, dividends not

M1 LIMITED B2F.SI

M1 Limited FY15: Earnings in line, dividends not

Results largely in line. FY15 net profit was 4%/3% short of our/consensus forecasts.
FY15 earnings growth due to higher EBITDA margin. Service revenue fell yoy.
Lower FY15 DPS a disappointment. High FY16 capex guidance is another negative.

4Q15 EBITDA rose by 1.1% qoq (-1.1% yoy), with modest revenue growth partially offset by softer EBITDA margin. Core net profit was down slightly by 0.7% qoq (-2.7% yoy) due to higher depreciation and effective tax rates.
FY15 core net profit was 1.8% higher yoy. This was largely in line, coming in 4%/3% short of our/consensus estimates.

For FY15, mobile service revenue eased slightly by 0.5% yoy. Postpaid revenue was flat yoy with higher data revenue offset by lower roaming and legacy service revenues. Meanwhile, prepaid revenue fell due to lower voice and IDD call usage.
Subs on tiered data plans only inched up 1% pt to 74% in 4Q15, out of which 21% (3Q15: 22%) exceeded their data allowance. This suggests that higher excess data usage revenues may be increasingly harder to drive.

Fixed services revenue grew 14.4% qoq (+28.6% yoy) in 4Q15 and was up 21.7% yoy for FY15. It now makes up 10.4% of FY15’s service revenue vs. 8.5% in FY14.
Fibre customers grew 8k qoq to 128k, driven by both residential and corporate customers. Revenues should continue to grow into FY16 as M1 and SingTel won a contract 1.5 years ago to provide fibre connectivity to the government.

EBITDA margin on service revenue improved 0.7% pts yoy to 40.8%, on lower leased circuit costs (through own-build), handset subsidies, bad debts and traffic expenses. Qoq, EBITDA margin eased 0.4% pts due to seasonality (marketing, subsidies).

M1 declared a final DPS of 8.3 Scts. This brings FY15 DPS to 15.3 Scts (80% payout), or 19% lower vs. FY14. While this is in line with the company’s dividend policy, we had expected a 100% payout, similar to its payout in FY14.
Net debt/EBITDA stood at 1.0x as at end-FY15, at the lower-end of its optimal gearing level. But with S$64m spectrum payment due this year, sustained high capex and the prospects of a new mobile entrant, special dividends in FY16 are unlikely, in our view.

M1 is guiding for FY16 capex to be around S$140m, which equates to a high capex/ sales of 15-16%. This includes fibre investment to further extend its reach to corporate customers. M1’s CEO says that this could be the new normal for the next few years.

We keep our earnings forecasts and DCF-based target price (S$3.10) unchanged. Our capex and dividend payout assumptions may need to be revisited. Maintain Hold.

FOONG Choong Chen CFA CIMB Securities | http://research.itradecimb.com/ 2016-01-19

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