M1 – OCBC

Good 2Q performance

Good results due to lower costs and better ARPU. MobileOne (M1) delivered a good set of 2Q07 results. Revenue came in at S$199.8m (+1.7% QoQ, 4.0% YoY) with net profit for the quarter at S$40.6m (-19.0% QoQ, +10.0% YoY). The reason for the sequentially decline is due to a positive tax adjustment in 1Q07 from the change in corporate tax rate to 18%. Excluding the one-off tax adjustments (i.e. at pre-tax level), M1’s 2Q07 pretax profit came in at a strong S$50.4m, +10.0% QoQ and 7.2% YoY. The stronger profitability is also reflected by the EBITDA improvement to S$81.9m, +7.5% QoQ and 6.0% YoY. The better operating performance appears to be driven by revenue growth and lower operating expenses.

Post-paid segment star. Over the last quarter, M1 saw 31k increase in the number of subscribers – 14k new prepaid and 17k new postpaid customers. However, even though prepaid had more customers and MOU increased, its revenue continue to fall a further 3.3% QoQ. This in turn led to ARPU for prepaid falling 5.3% QoQ to S$16. The poor performance for prepaid was probably due to aggressive promotions by M1’s competitors and the situation is not expected to lessen anytime soon. But on a positive note, M1’s postpaid segment saw revenue growth of 3.6% QoQ with ARPU improvement of 2.6% QoQ to S$62.2, neutralizing the revenue decline from prepaid, giving an overall mobile revenue improvement of 2.9% QoQ.

Number portability delayed. In the results, M1 also revealed that the mobile number portability initiative by the regulators has been delayed by about 6 months. This in turn is likely to delay any competitive action by players to a later date. This could possibly explain the lower acquisition cost (down 5.7% QoQ) and retention cost (down 12.3% QoQ) incurred by M1 over the last quarter.

7.1 cents payout; maintain HOLD. In the 1H07, M1 has declared an interim dividend of 2.5 cents plus 4.6 cents coming from a capital reduction. The total payout of 7.1 cents translates to a payout ratio of 70% and investors will thus enjoy an interim yield of 3.3%. Finally in light of the better operating performance, M1 is also guiding a single-digit PATMI improvement versus previous guidance of a stable operation. We maintain our S$2.33 fair value and our HOLD rating.

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