M1

Maybank Kim Eng Research, Oct 16

FOLLOWING a strong performance in Q3-13, we raise our DCF (discounted cash flow)-derived target price from S$3.69 to S$3.98 as we believe M1 could pay a special dividend of up to 7 cents a share on top of the regular full-year dividend of 14.8 cents. If it does, dividend yield would rise to an attractive 6.3 per cent, in line with the S-Reits. Another catalyst would be the Barclays Premier League cross-carriage. If M1 succeeds in its bid, this will be a huge boost to its Pay TV business. Maintain BUY on M1.

Q3-13 net profit rose 19 per cent y-o-y to S$39.5 million following through on the good results of the past two quarters, despite the IDA fine of S$1.5 million.

Despite a dip in postpaid ARPU, the trend of rising data monetisation is still very much intact, as can be seen from the continued rise in data contribution, now at 42.3 per cent of service revenue, as well as the number of subscribers who have switched over to tiered data plans (32 per cent of postpaid base, up 5 percentage points q-o-q) and continue to bust through their data caps (5.1 per cent of postpaid base, up 1.2 percentage points q-o-q). The lower ARPU was mainly due to seasonality effects.

Ebitda margin rose y-o-y and q-o-q to 37.7 per cent in 3Q13 as lower subscriber acquisition and handset costs fell while the market waited for the iPhone 5S. We are optimistic the impact will be smaller than before, as M1 reported that volume demand for the 5S is lower than the 5, and most of Apple's supply is being soaked up by China and Japan. M1 has maintained its full-year guidance of "moderate" earnings growth.

There are two catalysts to look forward to. One, M1 expects to be able to cross carry BPL by mid-2014 if it achieves the minimum 10,000 MiBox subscribers it needs to qualify. Being able to cross carry BPL will be a huge coup for M1, kickstarting its fledgling Pay TV business. Two, M1 may pay a special dividend this year as net debt/Ebitda is at a record low 0.6 times and capex should be stable next year. If it gears up to 0.8 times, this could add another 7 cents to our full-year forecast of 14.8 cents.

BUY.