Author: kktan
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.
M1 – OSK DMG
Dialing Up Decent Numbers
M1’s results were in line. The stronger take-up of tiered data plans is positive although effective ARPU accretion is still capped by roaming revenue weakness. We expect higher SAC to crimp 4Q13 EBITDA margin. Our forecast and NEUTRAL rating on the stock remain unchanged as with our FV of SGD3.25 (9% WACC). M1 remains our top telco pick on relatively cheaper valuations versus its local peers.
In line. M1’s 9MFY13 core earnings made up 74% and 75% of our and consensus estimates respectively. 3Q13 service revenue growth of 5.4% brought cumulative service revenue growth to 6.1%- in line with our expectations. The lower handset and A&P led to decent EBITDA and net profit growth of 6.4% and 9.7% respectively YTD.
EBITDA margin held up but should fall in 4Q13 due to the launch of the iPhone 5s/5c and the Samsung Note 3 in late September. Subscriber acquisition cost (SAC) fell 2% q-o-q as customers held back their purchases in anticipation of the launch.
Decent demand for MiBox. M1 disclosed that slightly <70% of the Android set-top box (launched in 3Q13) sold is bundled with its fiber offering. It hopes to qualify for content cross- carriage by mid-2014 when the number of pay-TV subscribers hit the 10k mark for eligibility.
Roaming weakness puts pressure on APRU despite higher take-up of tiered plans. The percentage of postpaid customers on its tiered data plans widened to 32% from 27.5% in 2Q13 (4% in 3Q12). While M1 said it continued to witness good ARPU uplift (+10% on 3G ARPU) from subscribers ‘tiering-up’, roaming revenue pressure has nonetheless cap effective ARPU accretion.
Maintain NEUTRAL, FV of SGD3.25. There is no change to our forecast with management reaffirming its profit guidance for the full year of ‘moderate growth’. Management said the recent penalty imposed by the IDA of SGD1.5m for network disruption earlier this year has been factored into its guidance. M1’s capex should remain elevated in the December quarter (YTD: SGD79m) with tail-end spending on network enhancements.
SPH – CIMB
Lower dividends as expected
Media continues to be impacted by a weak advertising climate, leading to a fall in regular dividends. However, the cash from SPH REIT provides management with a war chest for property development, the success of which will be key to growing shareholder's wealth.
FY13 core earnings forms 94% of our full-year estimates. We deem it in line as the slight miss was due to a fall in investment income. Recurring earnings formed 100% of our estimates. We tweak FY14-15 forecasts on housekeeping matters, and introduce FY16 numbers. Our SOP-based target price rises as we roll over to end CY14. We maintain our Neutral rating.
FY13 highlights
Full-year core earnings fell 15% yoy on 1) lower newspaper revenues (-3.9%) due to the decline in advertising (-4%) and circulation revenues (-3.6%), 2) higher interest expense from the debt taken on at SPH REIT and 3) lower investment income.
Operating expenses rose (+3% yoy) due to writedowns relating to an overseas magazine subsidiary, but this should decrease as cost savings to the tune of S$19m was unveiled for 2014. Though there are no signs of a pick up in advertising revenues yet, the slight positive was that 4Q advertising revenues decline appears to have moderated. Property continues to do well with 3% rental increases coming from Paragon. Seletar Mall has secured Shaw Theatres, NTUC Foodfare and FairPrice Finest as anchor tenants.
S$100m new media fund
SPH is targeting acquisitions of new media start-ups to enhance its online offerings to advertisers. This leaves S$657m of the cash raised for property development.
22 Scts regular dividends
This is lower than FY12's 24 Scts. Management has guided that future dividends will depend on recurring earnings and that it will not dip into its cash balance. This means that investors should not expect a return to the 24 Scts level anytime soon, considering the loss of 30% property income.
SPH – CIMB
Lower dividends as expected
Media continues to be impacted by a weak advertising climate, leading to a fall in regular dividends. However, the cash from SPH REIT provides management with a war chest for property development, the success of which will be key to growing shareholder's wealth.
FY13 core earnings forms 94% of our full-year estimates. We deem it in line as the slight miss was due to a fall in investment income. Recurring earnings formed 100% of our estimates. We tweak FY14-15 forecasts on housekeeping matters, and introduce FY16 numbers. Our SOP-based target price rises as we roll over to end CY14. We maintain our Neutral rating.
FY13 highlights
Full-year core earnings fell 15% yoy on 1) lower newspaper revenues (-3.9%) due to the decline in advertising (-4%) and circulation revenues (-3.6%), 2) higher interest expense from the debt taken on at SPH REIT and 3) lower investment income.
Operating expenses rose (+3% yoy) due to writedowns relating to an overseas magazine subsidiary, but this should decrease as cost savings to the tune of S$19m was unveiled for 2014. Though there are no signs of a pick up in advertising revenues yet, the slight positive was that 4Q advertising revenues decline appears to have moderated. Property continues to do well with 3% rental increases coming from Paragon. Seletar Mall has secured Shaw Theatres, NTUC Foodfare and FairPrice Finest as anchor tenants.
S$100m new media fund
SPH is targeting acquisitions of new media start-ups to enhance its online offerings to advertisers. This leaves S$657m of the cash raised for property development.
22 Scts regular dividends
This is lower than FY12's 24 Scts. Management has guided that future dividends will depend on recurring earnings and that it will not dip into its cash balance. This means that investors should not expect a return to the 24 Scts level anytime soon, considering the loss of 30% property income.
SPH – OCBC
Twin initiatives for growth and cost savings
- FY13 figures mostly in line
- Cost savings of S$19m p.a. ahead
- S$100m New Media Fund
Final dividend of 15.0 S-cents per share SPH reported FY13 (ending 31 Aug) PATMI of S$431.0m – down 25.0% – mainly due to a lower fair value gain on investment properties and a S$40.4m increase in the “other operating expenses” item. This increase comprises S$26.0m of non-recurring charges, including an impartment of an overseas magazine subsidiary, and a S$8.0m hike in promotion costs for its online businesses. Accounting for one-time items, core PATMI is estimated at S$348.9m, which constitutes 96.5% of our FY13 forecast and is judged to be mostly in line. In terms of the topline, newspaper and magazine revenue for FY13 was S$991.2m, decreasing 3.9% YoY due to declines in both advertisement and circulation. A final dividend of 15.0 S-cents per share was announced.
Initiatives to generate S$19m cost savings per annum
SPH’s traditional newspaper and magazines business continue to face headwinds in the form of declining advertisement (down 4.0%) and circulation revenues (down 3.6%). On the cost-side of the equation, however, we saw staff cost decreasing 2.9% as variable bonuses were reduced. Newsprint prices also held steady at US$607 over 4QFY13. In addition, management has began cost-saving intitatives that are expected to generate savings of S$19m per annum. Over FY13, property rental income increased 3.5% due to higher rental rates from Paragon while income from Clementi Mall remained stable. Seletar Mall remains on track and we expect completion by Dec 14.
Driving growth in new media businesses
To further drive growth, SPH will set up a S$100m New Media Fund to invest in mediarelated businesses. Currently, the group’s online classified businesses across SE Asia has an enterprise value of S$303m, and management expects its new media businesses, together with its retail property segment, to form two key pillars for growth ahead. Overall, we see management’s initiatives for growth and cost savings to be key positives and would look for execution and preliminary results over 1HFY14. Maintain HOLD with a fair value estimate of S$4.14.