- 3Q14 in line. Maintain BUY & SGD4.24 TP, DCF-based. Still our top telco pick.
- Very clear M1 is benefiting the most from data-plan monetisation.
- Rising smartphone data usage sustaining revenue growth in a highly-penetrated market.
Net profit of SGD44.5m in 3Q14 (+13% YoY, +1.4% QoQ) took 9M14 profit to SGD131.2m. At 77% of our full-year forecast, this was in line. We expect a slightly weaker 4Q14 as subscriber acquisition costs could be higher following the launch of iPhone 6 on 19 Sep 2014 and Samsung Note 4 on 10 Oct 2014. No change to EPS or DCF-based TP of SGD4.24 (WACC 6.0%). Maintain BUY with catalysts from continued monetisation of data plans. M1 is still our top sector pick.
Data strength sustainable
Average data usage increased from 2.4GB a month in 3Q13 to 2.9GB in 3Q14. We believe this strength is sustainable, governed by: 1) higher smartphone penetration for both postpaid (86%) and prepaid (35%); 2) rising postpaid users on tiered plans, at 61% in 3Q14 from 32% a year ago; and 3) higher smartphone and data usage among prepaid users, at 35% from negligible a year ago.
Managing prepaid challenges well
Following 1 Apr’s ruling on 10-to-3 SIM card purchases, prepaid users should continue to fall. But in our view, M1’s strong focus on revenue growth will serve it well, with smartphone penetration and rising data usage compensating for subscriber attritions and declining IDD minutes. Already, M1’s postpaid revenue has beenrising despite net subscriber attritions, a trend which is inevitable in a highly-penetrated mobile market like Singapore’s.
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