M1

OCBC on 17 Apr 2012

M1 Ltd reported its 1Q12 results last evening, with revenue coming in at S$262.5m, up 1.9% YoY, or around 2.1% shy of our forecast. While total revenue was down 17.2% QoQ, it was mainly due to the 44.8% drop in handset sales; mobile services revenue continued to grow, rising 2.6% YoY and 1.4% QoQ. As a result, net earnings – though down 5.3% YoY, rebounded 7.2% QoQ to S$40.3m, or just 1.7% below our estimate. For 2012, M1 has maintained its previous guidance, expecting stable performance at both top and bottom-line; and keeps capex guidance of S$110-130m. While M1 did experience a lower free-cashflow (down 48.5% YoY and 47.6% QoQ) of S$24.1m, it was due to payment made in 1Q12 for stocks delivered in 4Q11. As such, it is likely one-off and will not affect our DCF-based fair value of S$2.81. Maintain BUY.

1Q12 results mostly in line
M1 Ltd reported its 1Q12 results last evening, with revenue coming in at S$262.5m, up 1.9% YoY, or around 2.1% shy of our forecast. While total revenue was down 17.2% QoQ, it was mainly due to the 44.8% drop in handset sales; mobile services revenue continued to grow, rising 2.6% YoY and 1.4% QoQ. As a result, net earnings – though down 5.3% YoY, rebounded 7.2% QoQ to S$40.3m, or just 1.7% below our estimate.

Modest margin improvement
As expected, the dip in margins in 4Q11 was largely seasonal (also due to higher-than-expected sale of the new iPhone 4S). In 1Q12, service EBITDA margin recovered to 40.1% from 39.2% in 4Q11, although still lower than 3Q11’s 42.1%. Management believes that once it reaches economies of scale for its fixed services (where it added another 7k new fiber broadband customers), margins should continue to improve. Meanwhile, post-paid acquisition eased slightly to S$363/subscriber from S$423 in 4Q11; but cost could remain elevated given that more subscribers are moving towards smartphones (now 60% of subscribers are smartphone users).

Stable financial guidance for 2012
For 2012, M1 has maintained its previous guidance, expecting stable performance at both top and bottom-line; and also keeps capex guidance of S$110-130m. Management also expects the growth momentum for mobile data and fixed services revenue to continue for the rest of 2012; and believes it is well placed to capture this growth with the completion of its LTE network rollout in 2H12 and also the nationwide coverage and increased awareness of NBN. However, M1 did note that the pace of the NBN rollout is still below its expectation.

Maintain BUY with S$2.81 fair value
While M1 did experience a lower free-cashflow (down 48.5% YoY and 47.6% QoQ) of S$24.1m, it was due to payment made in 1Q12 for stocks delivered in 4Q11. As such, it is likely one-off and will not affect our DCF-based fair value of S$2.81. Maintain BUY.