M1 – Phillip

Q1 FY08 Results Within Expectations

Net profit dropped in Q1. For Q1 FY08, M1 reported operating revenue of S$203.9m (+3.8% yoy), profit before tax of S$46.8m (+2.6% yoy) and net profit of S$38.0m (-23.5% yoy).

The increase in revenue was due to service revenue growth as the customer base increased by 19,000 from the last quarter to 1,554,000. The decrease in net profit in Q1 FY08 was due to the adjustment for the reduction in corporate tax by 2% to 18% in Q1 FY07.

Outlook for FY08. M1 expects the operations for 2008 to remain stable. The introduction of full mobile number portability from 13 June 2008 is likely to cause increased competition, which may result in short term increase in acquisition and retention costs. However, there are opportunities for M1 to target specific market segments. Furthermore, StarHub Ltd has joined M1-City Telecom consortium to jointly submit a bid to design, build and operate the passive infrastructure layer for the Next Generation National Broadband Network (NBN).

Maintain Hold with fair value at S$2.16. Based on our valuation using the free cash flow to firm model, the target price is maintained at S$2.16. M1 remains a hold as the growth in revenues and profits are likely to be limited due to its focus on the domestic market.

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