M1 – OCBC

Pretty decent 1Q08 results

1Q08 results pretty decent. MobileOne (M1) posted a pretty decent set of 1Q08 results, with operating revenue up 3.8% YoY (down 1.4% QoQ) at S$203.9m, meeting nearly 25.4% of our FY08 revenue forecast. Although net profit fell 23.7% YoY (flat QoQ) to S$38.0m, meeting about 22.2% of our full-year earnings estimate, we note that the decline was mainly due to a higher tax of S$8.8m, versus a tax credit of S$4.1m in 1Q07, and a tax of S$6.4m in 4Q07. Looking at the operating level, profit was actually up 1.3% YoY and 4.9% QoQ at S$48.8m. EBITDA was also fairly stable at S$78.9m, up 3.5% YoY and 3.1% QoQ, although margin eased slightly from 43.4% in 1Q07 to 42.2% but was still above 4Q07’s 40.9%.

Mobile data usage growing steadily. On the operating front, M1 managed to add another 19,000 new subscribers (+1.2% QoQ) over the previous quarter, but we note that the bulk came from the competitive prepaid segment (+1.8% QoQ), while the more lucrative postpaid segment gained 0.8%. In addition, ARPU (Average Revenue per User) numbers were slightly disappointing, with prepaid down 7.7% QoQ at S$16.8 and postpaid down 1.3% QoQ at S$61.6. While acquisition cost fell 31.6% QoQ to S$143/user, and retention cost eased 7.5% QoQ to S$136/user, we expect them to rise again as competition is likely to heat up ahead of the implementation of full MNP (Mobile Number Portability) from 13 June 2008. On a more positive note, mobile data ARPU has not only remained fairly stable at S$31.7 (+0.3% QoQ), its contribution of service revenue has risen from 7.2% in 1Q07 and 9.6% in 4Q07 to 12.4% in 1Q08.

Focus on mobile broadband space. Going forward, we expect the data segment to increase its contribution, given the recent incentives by M1 to focus on the mobile broadband space. In addition, M1 has emerged as a serious contender in the NGNBN project, given that rival StarHub has recently joined the M1-City Telecom NetCo consortium and it will also evaluate the RFP details for the OpCo tender. Meanwhile, we retain our BUY rating and S$2.33 fair value as we continue to like M1 for its defensive nature, given its stable earnings stream and high dividend payout.

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