M1 - Maybank Kim Eng 2016-01-19: More Risks Ahead but Dividend Supportive

M1 - Maybank Kim Eng 2016-01-19: More Risks Ahead but Dividend Supportive M1 LIMITED B2F.SI 

M1 (M1 SP) More Risks Ahead but Dividend Supportive 

FY15 results in line. HOLD. 

  • FY15 results were as-expected but the final dividend was below forecast at 8.3 SGD cts, which led to full year DPS of 15.3 cts (80% payout). 
  • Our forecast of 17.5 cts was already based on a 90% payout, already lower than the 100%/120% paid in FY13/14. 
  • Capex guidance has been raised to SGD140m in FY16, which M1 thinks will be the new norm. And this still does not include payments for the upcoming spectrum auction that will need to be paid for in FY17. 
  • While FY16 results are expected to be “stable”, there is likely to be no room for upside in dividends. 
  • We have lowered our dividend payout to 80% for FY16/17/18, which should be sustainable. 
  • Although upside to TP is 18%, we maintain HOLD with DCF TP largely maintained at SGD3.09 as M1 faces a slew of risks ahead. The best that can be said is that yield is supportive at c.6%. Prefer Singtel. 

ARPUs fell but margins rose 

  • Postpaid ARPU decline continued to accelerate, down SGD3 YoY in 4Q15 (vs. SGD1.70/1.00 in 3Q14/2Q14), mainly due to the popularity of the ARPU-dilutive shared and SIM-only plans. 
  • Prepaid ARPU also fell for two consecutive quarters. Nevertheless, margins improved YoY to 42.2% in 4Q15 and for the full year, and EBITDA margin on service revenue was better, mainly because of lower handset subsidies related to these plans. 

Investing in new technologies, corporate business 

  • M1 is trying out new ways to enhance its value proposition as it fights against increasing marginalisation. It is investing in new technologies (SGD8.5m in 4Q15) that it thinks could benefit it in the long term, as well as promoting and investing more in its fixed fibre business to bolster the keenly competitive consumer business. 
  • New tech is likely to be in the space of machine-to-machine Internet-of-Things. 

Spectrum auction its biggest upcoming challenge 

  • The upcoming spectrum auction is likely to be held in July, M1 believes. 
  • When questioned about the scarce 900MHz spectrum, management refused to comment. 
  • M1’s current allocation of 10MHz could shrink in the face of insufficient spectrum and likely intense bidding from Singtel. We have not factored in any payments into our forecasts.

Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-01-19
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 3.09 Down 3.13