M1 – DBS

On track to meet targets

At a Glance

• 3Q09 net profit of S$34.2m in line with our expectations
• Market share steady at 25.6%, recently concluded iPhone deal should enhance competitive status.
• Management upped the FY09F capex guidance to S$120m due to quicker than expected rollout. The backhaul cost savings of over S$10m in FY10F is on schedule.
• BUY for 7% FY10F EPS growth and 7.3% dividend yield.

Comment on Results

3Q09 net profit of S$34.2m, on the back of a 4% y-o-y fall in revenue to S$188m, was in line with our projection of S$35m. Revenues were affected by lower ARPUs (competitive tariffs) in the postpaid segment and bundling discounts on prepaid offerings. However, operating expenses also declined 4.4% owing to lower staff costs and facilities expenses, thus preserving margins.

Operating metrics showed a mixed performance – growth in volume accompanied by lower ARPUs – but mobile market share remained constant at 25.6%. Net new adds totaled 49,000 in 3Q09, largely driven by prepaid acquisitions. However, postpaid and prepaid ARPUs both fell, by 1.3% and 5.2% q-o-q respectively, owing to competitive pricing tactics. Data contribution to revenue continued to improve, growing to 11.9% in 3Q09 from 10.9% in 2Q09.

Outlook & Recommendation

The backhaul network, which is expected to yield cost savings of S$10-15m in FY10, is on schedule and management upped the FY09 capex guidance to S$120m, as work is progressing faster than previously expected. The Qala integration is also on track, as is the work on operational readiness for commercial launch of NGNBN fixed broadband offerings by 2Q-2010.

Dividend yield in excess of 7% look secure, as market share concerns have been further eroded by the recent iPhone deal with Apple.