M1 – Phillip

High Mobile Churn, Slow Fibre Growth

Company Overview

M1 is the 3rd largest Telecommunications company in Singapore. The introduction of NGNBN in Singapore lowered entry barriers to the Fixed Line business, which would allow M1 to venture into the corporate and retail broadband market.

5% decline in profits on 2% growth in sales

Fibre take up remains slow at 7k/qtr

High mobile churn rate of 1.5%

Maintain Reduce with TP of S$2.38

What is the news?

M1 reported revenue increase of 2% attributable to growth in Mobile Services revenue & Fixed Services revenue. Growth in Mobile Services revenue was mainly due to a larger customer base, while Fixed Services revenue improved with a gradual increase in broadband subscriber base (Overall: 50k; Fibre: 29k). EBITDA margin on service revenue declined 2.1ppt as the increase in operating costs outpaced the growth in revenue. Postpaid mobile churn of 1.5% in the quarter was at the highest level since 2QFY10.

How do we view this?

The results were largely in line with our expectations. Despite aggressive pricing by M1, the company’s growth in fibre subscriber base remains slow at a run rate of 7k subscribers in a quarter. We believe that M1’s fixed line business would not be able to contribute meaningfully to its bottom line for at least another year.

Investment Actions?

We tweaked our estimates slightly and maintain our Reduce rating on M1.

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