M1 - OCBC Investment 2016-01-19: Guides for 'stable' 2016 earnings

M1 - OCBC Investment 2016-01-19: Guides for 'stable' 2016 earnings M1 LIMITED B2F.SI 

M1: Guides for "stable" 2016 earnings 

 FY15 earnings 1% below forecast 
 Sees stable earnings in 2016 
 Likely to keep 80% payout again 

FY15 results mostly in line; dividend disappoints 

  • M1 reported its 4Q14 results last night, with revenue slipping 11% YoY to S$307.9m, mainly due to lower handset sales versus a year ago (- 27%); but offset by the increase in fixed services (+29%) albeit on a lower base. 
  • While EBITDA managed to inch up 2.1% to S$88.2m, net profit eased 2.3% to S$43.5m. 
  • For the full year, revenue climbed 8% to S$1157.2m, or about 9% above our forecast (mainly due to higher handset sales), while net profit edged up 1.5% to S$178.5m (just 1% below our estimate), and was in line with its tightened guidance of “low single-digit” growth. 
  • M1 declared a final dividend of 8.3 S cents/share versus 11.9 S cents a year ago, bringing its total dividend to just 15.3 S cents (versus 18.9 s cents a year ago). 
  • While the total dividend payout ratio of 80.2% was in line with its guidance of at least 80%, we suspect the market may be disappointed, given that Bloomberg consensus was going for a total dividend of 18.1 S cents. 

Guides for “stable” performance in 2016 

  • Going forward, M1 believes that it can achieve a “stable” performance in terms of earnings growth in 2016, driven by mobile data and fixed services. 
  • It will also continue to invest in its mobile and fixed networks, including complementary services (expects to spend around 2% of total revenue to invest in these services to gain insight and access to new technology). 
  • In total, it expects to spend around S$140m as capex; but not including the S$64m spectrum payment due in Sep 2016 and any additional spectrum in the upcoming auction. 
  • M1 has maintained its “at least 80% payout ratio”; but with the additional payments and more muted economic outlook, we expect the payout to be pretty similar to FY15. 

Maintain BUY with a lower S$2.95 fair value 

  • We have fine-tuned our FY16 estimates and introduced our FY17 numbers, with earnings continuing to grow at low single-digit levels. But due to the higher-than-expected capex guidance (likely for FY17 as well), our DCF-based fair value drops from S$3.66 to S$2.95. 
  • Maintain BUY.

Carey Wong OCBC Securities | http://www.ocbcresearch.com/ 2016-01-19
OCBC Securities SGX Stock Analyst Report BUY Maintain BUY 2.95 Down 3.66