M1 – AmFraser

Interims in line with expectations

• M1’s interim results were in line with our expectations. We maintain our forecasts, as well as HOLD rating on fair value of $2.29.

• Total mobile subscribers grew a healthy 11% YoY to 1.85 million. Prepaid net adds at 11,000/month were stronger in 2QFY10, while that for postpaid maintained at 7,000/month. Prepaid made up 48% of total subscriber base.

• However, mobile service revenues grew a modest 2% YoY to $288.1 mil in 1HFY10 as ARPUs declined in 2Q. Prepaid fell 6% oY to $14.50, while that for postpaid fell 2% YoY to


• Mobile data continues as a key revenue driver, increasing its contribution to 17.8% of mobile service revenues in 2QFY10, from 11.5% in FY09. M1 continues to upgrade its network to achieve 42 Mbps.

• M1’s maiden launch of iPhones in December 2009 led handset sales to surge more-thantwofold in 1HFY10 to $108mil.

• M1’s new fixed line business which consolidated the acquisition of Qala Singapore (renamed M1 Connect) from 4QFY09, maintained business momentum but still accounts for a mere 3% of total service revenues of $364mil in 1HFY10.

• The launch of the new fibre Next Generation National Broadband Network is now delayed to September/October 2010.

• Total operating expense jumped 31% to $373mil in 1HFY10, but this was largely due to revenue-related costs such as handset subsidies.

• On balance, pretax rose a healthy 9% YoY to $97mil in 1HFY10, but net showed a mere 1% rise to $80mil, masked by the effect of a tax credit in 1QFY09.

• Management maintains a cautious outlook amidst a depressed global macro-backdrop, but guides for bottomline growth for FY10. We maintain our 4% YoY net profit growth to $157mil.

• Dividend yield at 6% – 7% p.a. is now less compelling, after share price appreciation of 88% over the past 20 months since its low.

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