M1 – OCBC
Looking forward to NBN
Likely decent start to 2010. M1 Ltd will kick off the reporting season for the telcos and we expect to see a pretty decent set of 1Q10 results on 16 Apr 2010, driven by the rapidly recovering economy in Singapore; a MAS poll of 20 economists pegs the average GDP growth forecast at 9.5% for 1Q10. Mobile subscriber numbers have also been pretty encouraging, with total subscribers (2G+3G) up 0.1% from Dec to 6.865m in Feb, as the number of 3G subscribers continued to grow. We suspect one reason for this increase is probably due to the ongoing demand for the Apple iPhone 3GS, which M1 had started distributing in Dec 2009.
Outlook for mobile market remains buoyant. Although the mobile phone penetration rate has already hit 137.6% in Feb 2010, we believe that the proliferation of mobile Internet devices with standalone 3G SIM cards – like the Apple iPad 3G version – will continue to drive growth in the mobile market. We believe that M1’s recent capex in building up its own backhaul capabilities will enable it to garner a bigger share of this growing mobile data market. For the overall market, industry watcher Research and Markets predicts that Singapore’s mobile subscriber base will hit 7.750m in 2014, up 13% from 2009.
Looking forward to NBN. Besides the still buoyant mobile market, M1 is also looking towards the NBN (National Broadband Network) initiative for growth. More specifically, access to the previously restricted (or totally unavailable) home and business broadband markets will offer the highest growth opportunities for M1 and also allow the telco to become a “full service” provider. Already we see that its move to buy over Qala Singapore in Sep 2009 has started to bear fruits – we note that M1 has already started marketing its business broadband packages, with prices from as low as S$105.93/month for a 4Mbps Dynamic ADSL.
Maintain BUY with S$2.28 fair value. For the upcoming 1Q10 results, we expect M1 to post operating revenue of S$211.9m, up 13.7% YoY (but down 2.0% QoQ) and a net profit of S$39.8m, down 4.9% YoY (but up 7.1% QoQ). In any case, we intend to hold off adjusting our FY10 estimates until after the results. We also maintain our BUY rating as M1 could potentially benefit the most when NBN kicks off from mid-2010.