M1 – CIMB

Cost controls in place but little else

• In line. M1’s 1H09 annualised results are in line with market and our expectations, with deviations of 0.3% and 0.7% respectively. As expected, a tax-exempt interim DPS of 6.2cts (2Q08: 6.2cts) for a 70% net payout was declared.

• Topline belatedly rose. M1 reversed four successive quarters of revenue decline with revenue growth of 2.2% this quarter, thanks to higher postpaid revenue, more emphasis on customer acquisition/retention, higher handset sales, stabilising roaming and robust growth of wireless broadband. Postpaid revenue (65% of 1H09 revenue) rose 1.1% qoq, aided by a 0.8% qoq increase in postpaid subscribers and a 1.1% increase in ARPUs largely due to the success of its Take 3 programme. Take 3 has also attracted more mid-to-high-end users.

• Cost controls hemmed in higher SARC. Despite chasing market share and ramping up subscriber acquisition and retention costs (SARC), EBITDA margins were fairly stable qoq (+0.1% pt qoq), thanks to fairly active cost control. The main savings came from lower staff costs from a freezing of headcount, and lower bonuses and bad debts.

• Guidance in place. M1 elucidated its 1Q guidance of “stable operations”. It now expects FY09 PAT to be comparable to FY08’s, in line with our forecast of 1.8% yoy growth, despite challenging operating conditions. It will continue to focus on cost management, efficiency, the introduction of new initiatives to address growth segments and investing in future growth. M1 also reiterated its dividend policy of an 80% net payout for FY09.

• Maintain forecasts, target price and rating. We leave our forecasts and DCFbased target price of S$1.54 (WACC: 11.5%, LT growth: 1%) intact as the financial performance was in line. M1 remains a NEUTRAL as we see few positive catalysts for the stock. While revenue has rebounded qoq, growth remains unexciting. But downside should be limited by its attractive yields of about 9%. Our top pick remains SingTel (OUTPERFORM, target of S$3.20 under review). For exposure to yields, we advocate a switch out of StarHub (Underperform, target S$1.58) to M1.

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