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

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. 

■ Results largely in line with expectations 

  • 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. 

■ Flat mobile service revenue 

  • 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 still the bright spot 

  • 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 improving for the second consecutive year 

  • 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). 

■ DPS lower than expected 

  • 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. 

■ High capex to be sustained possibly for the next few years 

  • 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. 

■ Maintain Hold 

  • 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