Month: October 2012
M1 – DMG
Still noises on the line
The acute margin pressure persisted in the Sept quarter as expected due to the full quarter impact of the Android handsets, where fair value accounting is not observed. While 9M cumulative numbers were still behind the curve, M1 expects revenue and earnings to improve in 4QFY12. We have retained our forecast, fair value and recommendation, noting that forecast risk remains. NEUTRAL.
Calling for a better 4Q. M1's 9MFY12 results made up 66% and 68% of our and consensus estimates respectively (62%-65% of the street/our revenue forecast). Teh shortfall was mainly attributed to a further 3%-pt erosion in the EBITDA margin q-o-q, no thanks to the full-quarter impact of the accounting treatment for Android handsets (differs from fair value accounting applied for the iPhone where some revenue is recognized upfront to offset the subsidy). We are keeping our forecast – in line with the renewed guidance at its result call of a better final quarter- with the benefit of stronger revenue traction (Android revenue progressively recognized and fair value accounting for the iPhone 5). While management is guiding for improved earnings, it also stated that subscriber acquisition cost (SAC) is expected to rise due to the introduction of the Phone 5. This would imply much stronger revenue growth momentum.
Weak roaming revenue. M1 said it was affected by the seasonally weaker roaming traffic for the quarter and the lower Malaysia–Singapore roaming tariffs implemented last year. It had previously expected traffic to be stimulated by the lower rates (lowered by 20% for voice) but this has yet to materialize. We gather from the management that the split between inbound and outbound traffic has been fairly even.
Some improvement for NGN provisioning. M1 added 7k fiber broadband customers to 44k in 2QFY12. While it saw an improvement in the service-provisioning timeline for residential customers, M1 said this was still longer than the three days stipulated by the IDA. For commercial premises, the provisioning timeline is still below the threshold conveyed and it is working closely with all stakeholders to reduce the waiting time.
Seeing good LTE take-up – 43k subs on 4G in a matter of weeks. M1 is not able to monetize the premium charged for 4G usage (incremental SGD10/mth over 3G plans) due to the promotional waiver on access. Management said it is seeing a good shift from big screen usage to smartphones.
Capex and BPL. M1 is guiding for capex to remain at the SGD120m level until FY14, after which it would be replaced by maintenance capex. On the Barclays Premiership League (BPL) rights awarded non-exclusively to Singtel earlier, management reiterated its previous stance in not vying for premium content.
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.
- 6.0% Q-Q decline in Net profits on higher operating expenses, including higher cost of handset.
- 2.9% q-q increase in service revenue positive.
- Nationwide LTE coverage, higher iPhone 5 subsidies likely to increase post-paid customer base.
- Upgrade to Neutral, with new TP of S$2.41.
What is the news?
M1 reported 6.0% q-q decline in Net profits due largely to higher operating expenses, including higher cost of handset. Service revenue was however positive, with increases in revenue contribution from all three major categories.
How do we view this?
Although net profits were low, and EBITDA margins declined for the 5th consecutive quarter since 2Q11, we are upbeat on the improvement in service revenue, while noting that handset subsidies will be recovered in future quarters. We think that the nationwide LTE coverage and the higher iPhone 5 subsidies given by M1 compared to its peers would further increase its post-paid customer base. We see potential for fibre to significantly contribute to M1’s net profit, although this may take time as current profit margins are likely lower than its more established peers.
Investment Actions?
We adjust our figures to reflect 3Q12 earnings. With the current uncertainty in the macro economic environment, and as the search for positive real returns continue, M1’s dividend yield of 5.5% remains attractive at current prices. Fundamentally, M1’s service revenue growth continues to be healthy, while we do not expect any potential headwinds, other than a possible spectrum auction bidding war, for which M1 has the ability to compete in, possibly through an increase in borrowings from banks. We therefore upgrade our rating to “Neutral”, with a new TP of S$2.41.
SPH – DBSV
Hold for yield
- FY12 net profit declined 6% – marginally below expectations
- Final and special dividend of 17Scts, brings FY12 dividend to 24Scts, similar to FY11
- Ad revenue growth to remain lackluster on an uncertain economic outlook, FY13-14F earnings trimmed 3-5%
- Hold for 5.9% yield, TP stays at S$4.01
FY12 marginally below expectations. FY12 results ended 6% down y-o-y to S$365.6m on the back of a drop in print ad revenues (-0.7%), higher operating expenses (+4.5%) and lower investment income (-35%). Notwithstanding the weaker profits, dividends were in line with expectations with a final and special dividend of 17 Scts proposed to be paid on 21 Dec 2012. This brings FY12 dividends to 24 Scts, similar to FY11 and equates to a yield of c.5.9%.
Weaker newspaper ad revenues. Newspaper print ad revenues dropped by 5% y-o-y in 4Q12, larger than the – 1.5% y-o-y decline in 3Q12. Display and classified ads dipped by 3% and 9% y-o-y, respectively. We believe the uncertain global economic climate and slower GDP growth for Singapore will continue to weigh on print ad revenues for SPH. Our economist recently revised his Singapore GDP forecasts down to 1.8% and 3.2% for 2012 and 2013, from 2.5% and 3.5%, respectively.
Hold for 5.9% yield, TP remains at S$4.01. We have revised down our ad revenue growth in FY13F to zero growth, from 2% previously. Our forecasts are hence lowered by 4.6%/ 3.4% for FY13F/ 14F. This is partially mitigated by a lower newsprint charge out rate assumed at US$640/mt and US$600/mt in FY13F and FY14F respectively. Our sum-of-parts TP remains S$4.01 as we roll our valuation base to FY13F. While we see lackluster growth for the group mainly due to economic headwinds coupled with a higher cost environment, we believe downside should be supported by the payment of 17Scts dividends in Dec, and a relatively healthy dividend yield of 5.9% based on our expectations of 24Scts dividend in FY13F.
SPH – DBSV
Hold for yield
- FY12 net profit declined 6% – marginally below expectations
- Final and special dividend of 17Scts, brings FY12 dividend to 24Scts, similar to FY11
- Ad revenue growth to remain lackluster on an uncertain economic outlook, FY13-14F earnings trimmed 3-5%
- Hold for 5.9% yield, TP stays at S$4.01
FY12 marginally below expectations. FY12 results ended 6% down y-o-y to S$365.6m on the back of a drop in print ad revenues (-0.7%), higher operating expenses (+4.5%) and lower investment income (-35%). Notwithstanding the weaker profits, dividends were in line with expectations with a final and special dividend of 17 Scts proposed to be paid on 21 Dec 2012. This brings FY12 dividends to 24 Scts, similar to FY11 and equates to a yield of c.5.9%.
Weaker newspaper ad revenues. Newspaper print ad revenues dropped by 5% y-o-y in 4Q12, larger than the – 1.5% y-o-y decline in 3Q12. Display and classified ads dipped by 3% and 9% y-o-y, respectively. We believe the uncertain global economic climate and slower GDP growth for Singapore will continue to weigh on print ad revenues for SPH. Our economist recently revised his Singapore GDP forecasts down to 1.8% and 3.2% for 2012 and 2013, from 2.5% and 3.5%, respectively.
Hold for 5.9% yield, TP remains at S$4.01. We have revised down our ad revenue growth in FY13F to zero growth, from 2% previously. Our forecasts are hence lowered by 4.6%/ 3.4% for FY13F/ 14F. This is partially mitigated by a lower newsprint charge out rate assumed at US$640/mt and US$600/mt in FY13F and FY14F respectively. Our sum-of-parts TP remains S$4.01 as we roll our valuation base to FY13F. While we see lackluster growth for the group mainly due to economic headwinds coupled with a higher cost environment, we believe downside should be supported by the payment of 17Scts dividends in Dec, and a relatively healthy dividend yield of 5.9% based on our expectations of 24Scts dividend in FY13F.
M1 – OCBC
SEES QOQ IMPROVEMENT IN 4Q12
- More margin erosion in 3Q12
- Guides for QoQ improvement
- Maintaining our BUY rating and S$2.80 FV
More margin erosion in 3Q12
M1 Ltd reported another set of softer-than-expected set of 3Q12 results yesterday. While revenue of S$254.7m (+4.0% YoY and +9.6% QoQ) was largely in line with our expectations, another sharper-than-expected decline in margins saw net profit falling some 19.5% YoY and 6.0% QoQ to S$33.1m. M1 attributed the reduced profitability to the continued take-up of Android phones (amortized upfront) and also strong demand for other high-end smartphones (Apple iPhone 5 was launched on 25 Sep). For 9M12, revenue inched up 0.2% to S$749.4m, meeting 70.6% of our full-year forecast, while net profit fell 14.1% to S$108.6m, or 69.7% of our FY12 forecast.
Guides for QoQ improvement in 4Q12
Nevertheless, management remains confident that 3Q12 net profit is probably the lowest for this year as it now guides for QoQ improvements in both top and bottom lines. Management believes the strong demand for smartphones will continue to drive top-line performance while the Android subscribers previously acquired in 2Q and 3Q will contribute more positively to its bottom-line. In addition, it expects to see an uplift in ARPU as new subscribers (and those on recontract) are taking up the mid-end smartphone plans in light of the less-generous data bundles. But for the full-year, it has not changed its previous guidance given in 3Q, as it continues to expect the handset subsidies expensed upfront to have an impact on profitability.
Paring FY12 earnings by 2.8%
As such, we are paring our FY12F earnings by another 2.8% to account for the lower margins, even though we are maintaining our revenue forecast. However, we are leaving our dividend forecast of S$0.145/share unchanged, given its ability to generate strong free cashflows, which increased 46.5% in 9M12 to S$169m. Our DCFbased fair value also remains at S$2.80. Maintain BUY.