M1 – Phillip

Below expectations

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.

12.9% Q-Q decline in Net profits on amortization of handset revenue

0.7% Q-Q decline in Service revenue to S$190.4 million

Maintain Reduce with TP of S$2.38

What is the news?

M1 reported 12.9% q-q decline in Net profits due largely to a 40.9% decline in revenue from sale of handset. This is due to accounting treatment, in which revenue from the sale of non-iPhone handsets are amortized over the 24 months contract. Service revenue was also disappointing with decreases in pre-paid revenue, International call services, and fixed services.

How do we view this?

The results were below our expectations, although largely due to the phone’s accounting treatment. We note the weak performance in Service revenue and continued slow take up rate of Fibre broadband despite M1’s aggressive pricing. Improvements in service revenue or positive developments such as gaining back previously lost market share would be needed to warrant an upgrade.

Investment Actions?

We adjust our figures to reflect the lower upfront recognition of revenue from handset and 2Q12 earnings. We maintain our Reduce rating with an unchanged TP of S$2.38.



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