M1 LIMITED
B2F.SI
M1 (M1 SP) - 3Q17 Steady Growth From Post-Paid Mobile And Fixed Services
- Post-paid revenue grew 5.4% yoy, driven by expansion of post-paid subscriber base of 3.2% yoy and stable ARPU of S$55.40.
- The growth momentum in M1’s fixed services business was maintained.
- M1 continues to revamp its service offerings to address customers’ need for more data.
- Maintain BUY. Target price: S$1.95.
RESULTS
- M1 reported net profit of S$32.7m for 3Q17 (-4.8% yoy), in line with our expectations of S$34.1m.
Mobile: Sustained growth in post-paid subscribers.
- M1 cleaned up its subscriber base in 3Q17, which resulted in the purging of 14,000 post-paid and 47,000 pre-paid dormant subscribers. Net addition for post-paid subscribers was a positive 5,000 qoq.
- Unfortunately, net addition for pre-paid subscribers was a negative 41,000 qoq and its pre-paid subscriber base contracted 3.4% yoy. Thus, post-paid mobile revenue increased by a healthy 5.4% yoy but pre-paid mobile revenue contracted 13.2% yoy.
- Post-paid ARPU was stable at S$55.40. About 80% of post-paid subscribers are on tiered data plans (3Q16: 76%) and 33% of them exceeded their primary data bundles (3Q16: 26%). Average data usage increased 23% yoy to 4.2GB, boosted by Upsized Data. Data accounted for 55.9% of post-paid mobile revenue (3Q16: 54.2%). Pre-paid ARPU also stabilised at S$10.80.
Fixed services: Maintained positive momentum.
- Revenue from fixed services grew 19.9% yoy and contributed to 15.7% of service revenue. M1 added 6,000 subscribers (3Q16: 7,000). ARPU was stable at S$42.90.
- Management disclosed that corporate customers accounted for 10% of customer base but contributed 47% of fixed services revenue.
Slight help from lower handset subsidies.
- Handset subsidies fell S$0.9m qoq to S$23.9m as most customers were waiting for the upcoming blockbuster launches from Apple. The mix of handsets shifted toward affordable Android-based smartphones during the quarter.
- Staff costs increased 4.1% yoy due to salary increment and also the previous year benefitted from the government’s wage credit scheme.
STOCK IMPACT
Guidance for 2017 remains unchanged.
- Management expects net profit to decline in 2017. Capex is expected at S$150m. Management expects dividend payout ratio to maintain at 80% for 2017.
Anticipate impact of higher handset subsidies in 4Q17.
- iPhone 8 and 8 Plus were available since 6 Oct 17 but response has been muted as most customers were waiting for iPhone X. iPhone X would be available on 3 Nov 17. Management expects increased take-up for higher- tier post-paid mobile plans, which are likely to partially offset impact from higher handset subsidies.
Focus on data-centric mobile plans.
- M1 has launched a new series of data-centric SIM-only plans - MySIM3 - with larger data bundles to address customers’ preference for more data. The response to MySIM3 is encouraging. Of the 11,000 customers who signed up, 40% were new customers and 60% were existing customers who re-contracted.
Expansion into IT solutions.
- M1 would be investing in new technologies and capabilities to build a portfolio of IT solutions for SMEs and enterprise customers, including managed infrastructure, cyber security and data analytics. These efforts incur expenditure upfront and would affect EBITDA margin. It would take a couple of years before M1 achieves scale in service adoption and for the new business to make meaningful contribution to revenue.
EARNINGS REVISION/RISK
- While our 2017 and 2019 net profit forecasts are relatively unchanged, we raise our net profit forecast for 2018 by 13% as TPG is expected to commence commercial operations only in late-18.
VALUATION/RECOMMENDATION
- Our target price of S$1.95 is based on DCF (COE: 7.25%, terminal growth: 1.8%).
SHARE PRICE CATALYST
- Impact from impending entry of TPG Telecom in 2018.
- Savings in capex from sharing of mobile infrastructure with StarHub.
- Industry consolidation from four to three mobile operators over the next 3-5 years.
Jonathan Koh CFA
UOB Kay Hian
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http://research.uobkayhian.com/
2017-10-17
UOB Kay Hian
SGX Stock
Analyst Report
1.95
Down
1.980
