M1 – DMG

Here Comes The Money

M1’s FY10 results were in line with our/consensus expectations. A key sweetener was the earlier than expected special dividend proposed of 3.5cents/share, when combined with the final and interim payouts bumped up FY10 DPS to 17.5 cents/share or a compelling 7% yield. Following the results, we nudge our FY11/12 forecast higher by 3-8% to reflect the improved revenue traction, stronger data uplift and some revenue contribution from the NGNBN. While the stock has enjoyed a good run over the past month, our revised TP of SGD2.85 offers a further 14% upside potential. M1 remains our top pick for exposure to Singapore telecoms. BUY.

Bang in line–special dividend of 3.5cents/share. M1’s 4Q10 net profit was up 0.8% y-o-y (-5.1% q-o-q), driving FY10 net profit to SGD157.1m (+4.5% y-o-y). This compares with our forecast of SGD158.1m and consensus estimate of SGD158.4m. In meeting its 80% dividend payout guidance, a final dividend of 7.7cents/share was proposed. The pleasant surprise however came from an earlier than expected special DPS of 3.5cents/share, bringing FY10 cumulative DPS to 17.5cent/share, or a net payout of 100% (the last time M1 dished a special dividend was in FY07). Key takeaways for the quarter include: (i) the stronger 2.7% q-o-q (+3.7% y-o-y) uplift in service revenue following 3 quarters of flat showing as IDD revenue recovered, up 3.4%- the strongest q-o-q growth since 2QFY08 and brisk smartphone sales (55% of its subs base on smartphones); (ii) 2%-pts erosion in EBITDA due to the typically higher acquisition activities during the year end and the launch of its NGNBN services last September. Non voice revenue expanded to 33.3% in 4QFY10.

Mal-Sing roaming rates still fluid. M1’s revelation that it is still awaiting further directives from the IDA on the potential cut in the roaming rates for Malaysia and Singapore is consistent with our expectation in that there could be further delays in the implementation. Management indicated that 12-15% of its service revenues are from roaming (a sizeable portion from Malaysia) and where it is a net-outpayer of roaming.

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