M1 – OCBC

FY12 RESULTS MOSTLY IN LINE

  • Higher-than-expected tax expense
  • Guides for moderate earnings growth
  • Keeps minimum 80% payout ratio

Special dividend of 1.7 cents

M1 Ltd reported its 4Q12 results last evening. While revenue of S$327.4m (+3.2% YoY, +28.5% QoQ) was 5.0% ahead of our forecast, aided by higher handset sales of the new iPhone 5 and new Samsung Note 2, net profit of S$37.9m (flat YoY, +14.5% QoQ) was 11.7% below our estimate. This was mainly due to higher-than expected tax expense of S$11.8m (+78.8% YoY. +63.9% QoQ) arising from prior years’ under-provision of deferred taxation. For FY12, revenue came in at S$1076.8m, or 1.5% above our number, while net profit of S$146.5m was 3.3% below. M1 declared a final dividend of S$0.063/share and a special dividend of S$0.017/share, bringing the total full-year dividend to S$0.146 (versus S$0.145).

Expects moderate earnings growth in 2013

Going forward, management expects to see moderate earnings growth in 2013, aided by continued strong take-up of 4G services, where it already has 146k 4G subscribers as of end-2012, thanks to its faster 4G roll-out across the island compared to its peers; uplift from its new tiered pricing plans. Management also cites a likely acceleration of fiber adoption as a driver as margin will improve with scale – M1 currently has close to 52k NBN customers as of end 2012; company believes that it can hit optimal efficiency with 100k users. Meanwhile, M1 will spend some S$130-150m capex to expand its mobile coverage and capacity (partly due to new QoS imposed by IDA). It also maintains a minimum 80% dividend payout ratio.

Maintain BUY with S$2.89

We are paring our FY13 earnings forecast by 9% after taking the guidance into consideration. But as we shift our DCF valuations out to 2015, our fair value remains unchanged at S$2.89. Maintain BUY as we still believes M1 has potential gain market share in the NBN segment.

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