M1 – CIMB

Roamers hanging up

At 94% of our forecast, M1’s annualised 9M13 core net profit was in line as we expect 4Q13 to be stronger qoq on lower subsidies.But M1 is a little ahead of consensus estimates at 98%. Data revenue was the key driver,but M1 was draggedby weaker roaming and IDD revenues.

We revise our FY14 DPS to 19 Scts to include a special DPS of 4 Scts and a final DPS of 8 Scts on the back of a net debt/EBITDA of only 0.5x. As such, we tweak our EPS estimates down. M1 remains an Outperform with a higher DCF-based target price after rolling a year forward. Likely price catalysts are a special dividend and earnings surprise.

Roaming is drowning

M1’s 3Q13 service revenue was flat qoq, despite a 6% rise in the adoption of tiered data plans to 32% (Figure 2). The growth in data revenue was diluted by: 1) lower roaming revenues due to lower inter-operator termination (IOT) rates and fewer travellers not using international data roaming by buying prepaid cards or using free WiFi at their travel destinations. We expect this phenomenon to continue because of expensive roaming rates, conveniently-available prepaid SIM cards in Singapore and most countries, and downward trend on the IOT. Roaming revenue contributes 12% of M1’s net revenues; and 2) weaker IDD revenues on lower tariff. As a result of these factors, service revenue slowed from 9% yoy in 2Q to 5% in 3Q (Figure 5). Device subsidies dipped 7% qoq despite the launch of the Samsung Galaxy S4 in mid-Jul. This reflects the lower selling price of this device.

iPhone 5S and 5C and 4Q

We expect EBITDA and EBITDA margin to rise qoq in 4Q on the back of the iPhone 5S/5C which were launched at end-Sep. Unlike the subsidy of other devices which are expensed, that of the iPhones are amortised over the term of their contract.

Capex

M1 expects 2014 capex to be similar to 2013’s S$130m on the back of projects spilling over from this year. This includes the expansion of its office space and upgrade of its billing system.

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