M1 – Phillip

FY2009 results

M1 reported operating revenue of S$781.6m (-2.4% yoy) and net profit of S$150.3m (+0.1% yoy) for FY2009.

Mobile telecommunications services revenue dropped to S$565.7m (-5.9% yoy). Due to lower voice usage and roaming revenue, there was a decline in post-paid revenue, which more than offset the increase in pre-paid revenue. Moreover, international call services revenue fell to S$128.4m (-6.3% yoy) because of the decrease in roaming traffic. However, fixed network and handset sales revenue rose to S$6.6m (+3,200.0% yoy) and S$80.9m (+30.2% yoy) respectively.

Operating expenses also dropped to S$601.9m (-1.2% yoy) because of lower facilities expenses, provision for doubtful debts and staff costs.

Net profit was slightly higher mainly due to lower provison for taxation of S$24.8m (-29.0% yoy). This was because of lower corporate tax rate.

Profit margin
Net profit margin increased from 18.7% in FY2008 to 19.2% in FY2009 mainly due to the decrease in provision for tax.

Changes in market share
M1 reported that the number of post-paid and pre-paid customers increased by 3.4% and 13.1% to 912,000 and 846,000 respectively. Its post-paid market share fell from 27.0% to 26.4% while its pre-paid market share rose from 24.3% to 25.0%. We are concerned about the decline in post-paid market share as M1 has lagged behind SingTel and StarHub in this segment. This is because M1 does not have Pay TV and is not able to offer bundled mobile, internet and Pay TV services.

Outlook for FY2010
M1 expects the earnings for FY2010F to be comparable to FY2009. Moreover, it believes that the launch of the Next Generation National Broadband Network (NGNBN) in 2Q10 will provide opportunities to offer internet services to retail and corporate customers.

Maintain Hold with fair value raised from S$1.78 to S$2.03
We raise the fair value of M1 from S$1.78 to S$2.03 as we expect M1 to report higher earnings in FY2010F. This is because it acquired Qala, an internet services provider for corporate, enterprise and public sector customers in Singapore, in FY2009. This is likely to boost its broadband revenue and profit in FY2010F. However, due to limited upside from the current share price, we maintain our hold recommendation.

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