M1 – Phillip
Q2 FY08 results are within expectations
Net profit increased slightly in Q2. For Q2 FY08, M1 reported operating revenue of S$205.3m (+2.8% yoy), profit before tax of S$50.8m (+0.8% yoy) and net profit of S$41.1m (+1.2% yoy).
The increase in revenue was due to service revenue growth as the customer base increased by 57,000 from the last quarter to 1,611,000. Postpaid and prepaid revenue increased 2.8% and 19.0% to S$271.5m and S$35.1m respectively. Moreover, international call revenue rose 15.1% to S$71.7m.
Outlook for FY08. M1 expects the operations for 2008 to remain stable. The introduction of full mobile number portability from 13 June 2008 resulted in an increase in competitive activities. Thus, M1 saw increases in both its acquisition and retention costs. Nevertheless, it expects competitive activities to settle down in a quarter or two.
The City Telecom-M1-StarHub consortium has jointly submitted a bid to design, build and operate the passive infrastructure layer for the Next Generation National Broadband Network (NBN). The Infocomm Development Authority is expected to announce the winner of the bid in Q3 FY08.
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.