M1 – Phillip

Q2 FY07 Results

Net profit continued to rise. For Q2 FY07, M1 reported net profit of S$40.6m (+10.0% yoy) and revenue of S$199.8m (+4.0% yoy). The increase in revenue was due to service revenue growth as the customer base increased by 181,000 on a yoy basis to 1,409,000. In fact, the increases in revenues from mobile telecommunications services (+6.2 yoy) and international call services (+13.1 yoy) more than offset the decline in handset sales (-16.5% yoy). The lower corporate tax rate of 18% also contributed to the increase in net profit.

On a half-year basis, revenue of S$396.2m was still 3.5% better yoy while 1H06 net profit of S$90.3m was 10.3% higher.

M1 remained attractive as a dividend play as it announced dividend distribution and capital reduction. In line with its intention to maintain a pay-out of at least 80% of net profit after to shareholders for FY07, M1 proposed to an interim dividend of 2.5 cents per share and a capital distribution of 4.6 cents per share without share cancellation.

Outlook for FY07. M1 estimated a single digit growth in profit after tax for FY07 barring unforeseen circumstances. In the postpaid segment, M1 expected an increase in customer base due to M1 broadband due to the simple “Plug & Play” devices and competitive price plans. Due to the launch of 3G Entertainment Buffet and the joint promotion of MeTV as well as new 3G and HSDPA handsets, it would likely see an increase in revenue. However, the prepaid segment remained competitive as a result of increased competition in the market and reduced tariffs by all operators.

M1, as part of the consortium with Hong Kong Broadband Pte Ltd, continued to participate in the IDA’s ongoing Request for Proposal process for the Next Generation Broadband Network and the results of the bid would be known by end 2007.

Maintain Hold with fair value raised to S$2.38. We expected FY07 net profit to increase by 9% yoy and FY08 net profit to gain by 5% yoy. The customer base and resulting revenue were likely to improve as the Singapore economy was expected to grow in 2007 and 2008. There would also be demand from new customers as the government continued to attract foreign investors and immigrants. M1 remained a hold as growth in revenues and profits were likely to be limited due to its focus on the domestic market. The increase in DCF-based fair value from 2.21 to 2.38 was to reflect the upgrade in FY07 and FY08 earnings.

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