M1 – OCBC

Better-than-expected 4Q14 showing

  • FY14 NPAT beats forecast
  • Keeps moderate earnings growth
  • Fibre ARPUs likely bottoming

Better-than-expected 4Q14 showing

M1 Ltd reported its 4Q14 results last evening, where revenue jumped 24.3% YoY (also +38.4% QoQ) to S$346.4m, driven largely by the strong handset sales, as demand for the new Apple iPhone 6 and 6+ remained robust. However, net profit grew by a slower 9.8% YoY (down 0.1% QoQ) to S$44.5m, mainly due to higher operating expenses (acquisition cost rose 10.6% YoY, +18.7% QoQ) and higher taxes. Nevertheless, the better-than-expected set of results saw its FY14 revenue of S$1076.3m (+6.8%) exceed our estimate by 4.9% and net profit of S$175.8m (+9.7%) outpace our forecast by 6.2. M1 declared a final dividend of S$0.119/share, bringing its total payout this year to S$0.189/share, versus S$0.21 last year.

Keeps moderate earnings growth outlook

For FY15, management continues to believe that it can achieve moderate earnings growth (within the single-digit range), driven by the stronger data usage. M1 notes that smartphone users contributed 65% of total data traffic in 2014, up from 55% in 2013. The group also revealed that 66% of postpaid customers are on tiered data plans, where 22% exceeded their data bundles. M1 is also upbeat about its fixed services segment, where the take-up of higher speed fibre plans will be ARPU accretive in the residential segment; it believes it is also wellplaced to capture growth in the corporate segment with its product and service differentiation. And with its LTE-network upgrade almost done, M1 expects to spend around S$120m as capex, down from the S$139.6m spent in 2014.

Improving FV to S$3.66

Besides the better-than-expected 4Q14 numbers, we are also heartened by the recovery in the residential fibre ARPUs, suggesting that the extreme price competition is starting to become more rational; although the continued drop in prepaid subscribers is an area to watch. In line with the latest guidance, we revise our FY15 estimates up by 2-7%; our DCF-based fair value also improves from S$3.37 to S$3.66, mainly due to the drop in 10-year bond yields. Maintain HOLD.

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