M1 – OCBC

Margins holding up in 3Q13

  • Sales slightly below expectation
  • Sees moderate NPAT growth
  • Raising FV to S$3.17

Margin holding up in 3Q13

M1 Ltd reported its 3Q13 revenue of S$241.7m, down 5% YoY and 1.1% QoQ, mainly due to lower handset sales (down 28% YoY, down 6.5% QoQ) as the launch of the new iPhone 5 models and the Samsung Note 3 were at the tail-end of the quarter. But as a result of this (and lower handset subsidies), service EBITDA margin improved to 38% from 37% in 2Q13 and 36% in 3Q12. Net profit also climbed 19% YoY and 1% QoQ to S$39.5m. 9M13 revenue was down 2.7% at S$729.3m, meeting around 64% of our FY13 forecast, while net profit rose 10% to S$119.7m, or 77% of our full-year estimate.

Keeping guidance unchanged

Going forward, management has kept its 2013 guidance intact i.e. still expects to see moderate earnings growth, driven by the continued migration of customers to the tiered pricing plans. M1 notes that some 32% are already on these plans where 16% has exceeded their data bundle, resulting in a 10% ARPU boost (but this is mitigated by lower roaming revenue). M1 has also kept its capex spend at S$130m (also expects similar amount next year as some upgrading projects are likely to spill over into 2014). Management also expects some growth from its internet TV service – MiBox . While M1 says the take-up is encouraging, it did not give any numbers. Nevertheless, the telco revealed that it could be eligible for crosscarriage of content by mid-2014.

Maintain HOLD with new S$3.17 fair value

In light of the 9M13 results, we opt to pare our FY13 sales estimate by 8%; but we keep our earnings estimate unchanged. Our DCFbased fair value inches up to S$3.17 from S$3.10 on slightly lower risk-free rate assumptions. Maintain HOLD.

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