M1 – BT

Analysts lower expectations of M1

ANALYSTS found little cause for excitement in M1’s full-year results that were released on Monday, with earnings falling just a hair short of some expectations and the outlook for the year ahead being a guarded one.

Full-year net profit came in at $164.1 million, about 1.4 per cent below Kim Eng Research’s forecast of $166.5 million and half a per cent shy of OCBC Investment Research’s estimates.

Revenue, which rose 8.8 per cent to $1.06 billion, beat OCBC’s estimate by about 4 per cent, driven by stronger handset sales. Phillip Securities Research analyst Derrick Heng noted that ‘M1 uses a fair value accounting method to record the sales of its iPhones that partly contributed to the strong top line recorded for its handset sales’.

Mr Heng, who downgraded the counter to ‘reduce’, also pointed out that even with higher value smartphone plans sold, postpaid average revenue per user (Arpu) was ‘only stable sequentially and declined by 1.6 per cent y-o-y in Q4 FY2011’. ‘We view that as a reflection of the inability to monetise mobile service revenue, in spite of high subsidy on the more expensive smart phones.’

DBS’s Sachin Mittal also believes that ‘each smartphone customer is more profitable initially due to fair value accounting and M1 may see a more adverse impact from the slowdown’. He maintained his ‘hold’ call on the stock, with a target price of $2.60.

Some analysts also appear to have tempered upbeat expectations of how M1 stands to gain from the rollout of the Next Generation Nationwide Broadband Network (NGNBN), at least in the near term.

‘(M1) expects fixed-data growth to pick up on the back of greater awareness among consumers of NGNBN which should pass 95 per cent of premises by mid-2012 from 84 per cent at end-2011,’ said CIMB Research’s Kelvin Goh and Justin Law in a report. ‘However, much of this is beyond M1’s control as progress would depend on OpenNet’s ability to connect premises with fibre. As for now, connection times are about three weeks, longer than the KPI of six days.’

CIMB has a ‘neutral’ call on M1.

Analysts also took their cue from the telco’s expectations of a ‘stable performance’ in 2012. M1 had warned that roaming revenue might be affected if a global slowdown were to dampen travel as well.

M1 closed five cents lower at $2.51 yesterday.

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