M1 posts 10% rise in Q2 net profit to $40.6 million

It aims to return 70% of $90.3m H1 net through capital reduction, dividend

MOBILEONE (M1) yesterday reported a 10 per cent year-on-year rise in second-quarter net profit to $40.6 million. This brought its first-half net earnings up 10.3 per cent to $90.3 million, 70 per cent of which the telco has proposed to return to shareholders through a dividend and a capital reduction.

The $40.6 million Q2 net profit translates to earnings per share (EPS) of 4.3 cents, up 16.2 per cent from 3.7 cents a year ago.

In a conference call yesterday evening, M1 chief executive Neil Montefiore attributed the better performance to higher revenues from increased data usage, as well as lower corporate taxes.

Q2 revenue grew 4 per cent to $199.8 million, helped by average revenue per post-paid user rising to $62.20 from $60.40 a year ago. This was driven by an increase in data usage by its post-paid customers, said Mr Montefiore. For H1, revenue rose 3.5 per cent to $396.2 million.

The company also brightened its outlook for the year by raising its profit forecast for the current financial year from stable to single-digit growth.

M1 proposed an interim dividend of 2.5 cents per share, and a cash distribution – by way of a capital reduction without any share cancellation – of 4.6 cents per share. Together, this will amount to 70 per cent of first-half net profit.

Mr Montefiore added that while M1’s wireless broadband service still constitutes a small portion of its customer base, it now has some 42,000 customers on the service, most of whom are on its $38 per month plan.

M1 added some 31,000 subscribers in the quarter, bringing its customer base to 1.409 million subscribers or about 28 per cent of the local market.

M1’s capex was $17.4 million in the first half of the current financial year, up from the $8 million spent in the same period last year. This was largely spent on its wireless broadband devices, said Mr Montefiore.

He added that with the growth seen in data usage, M1 is now evaluating technologies that will enable it to provide more of its own backhaul requirements.

‘Currently, we spend about $30 million per year on leased circuits that are not provided by ourselves,’ he said. This accounts for some 80-90 per cent of its backhaul requirement, most of which is leased from SingTel. M1 intends to reverse this, and by 2010 plans to have 80-90 per cent of its backhaul requirements self-provisioned.

M1 shares closed the day down 3 cents at $2.13. Shares of competitors StarHub lost 4 cents to finish at $2.86, while SingTel ended unchanged at $3.50.

Financial Data

All the data are extracted from the results,

Notes :

• All figures in S$,000,000 unless otherwise stated
• FY is end-Dec
• * – 4.6cts Capital Reduction

Result Highlights

• Operating Revenue – Grew YoY by 4.0% and 3.5% for 2Q07 and 1H07 due to service revenue growth. Against 1Q07, it increased 1.8% as service revenue increased 2.3%.
• Operating Expenses – YoY, total operating expenses increased 2.8% and 7.5% for 2Q07 and 1H07. It fell 1.4% as compared against 1Q07.
• Taxation – Provision for taxation decreased 3.0% and 74.2% YoY to $9.8m and $5.7m for 2Q07 and 1H07 due to an adjustment of $12.9m for the 2% reduction in corporate tax rate to 18%.
• Net Profit – Increased 10.0% YoY to $40.6m due to higher operating revenue and lower
  corporate tax. For 1H07, net profit increased 10.3% YoY to $90.3m due tax rate adjustment in 1Q07. Net margin was 22.6% and 25.4% for 2Q07 and 1H07 respectively.
• EBITDA – Increased 6.0% YoY to $81.9m for 2Q07 but decreased 3.7% to $158.2m for 1H07. Margin remained stable at 45.5% for 2Q07 but fell to 44.4% YoY for 1H07 due to our 10th anniversary promotions and 1H06 benefited from non-recurring adjustments. As compared to 1Q07, EBITDA increased by 7.5% and margin improved 2.1% point.
• Capital Expenditure – Incurred for 1H07 was $17.4m as compared to $8.0m for 1H06.
• Liquidity and Capital Resources – Operating cash flow decreased YoY by 99.1% and 43.9% to $0.5m and $71.3m for 2Q07 and 1H07 respectively mainly due to payment of tax.
  Consequently, free cash flow fell 117.3% and 54.7% YoY to -$9.4m and $53.9m for 2Q07 and 1H07 respectively.
• Gearing and Interest Cover – Gearing ratio was 173.9% and 41.6% as at end Jun 07 and Jun 06 respectively while it was 3.4% at end of Mar 07. Interest coverage ratio (EBITDA/Interest) was 30.4x and 32.3x for 1H07 and 1H06 respectively while it was 30.1x for 1Q07.

Forward Statements

As at end May 07, mobile penetration was 109.5%. M1’s total customer base increased by about 31,000 over the second quarter of 2007 to 1,409,000 as postpaid customers grew by about 17,000 and prepaid customers grew by about 14,000.

In the postpaid segment, the growth in customer base continued to be driven mainly by M1 Broadband. With nation-wide coverage, simple “Plug & Play” devices and competitive price plans, M1 Broadband offers a strong value proposition for customers to enjoy wireless broadband service. On the mobile front, M1 is encouraged by the increase in postpaid ARPU in 2Q07 and continual growth in revenue contribution from data services. With more prevalent 3G and HSDPA handsets, as well as innovative services introduced, M1 saw an encouraging increase in usage revenue in 2Q07. During the quarter, M1 launched 3G Entertainment Buffet, which offers a host of exciting video channels at attractive monthly subscription rates, as well as announced the joint promotion of MeTV – a video sharing service on mobile phones – with StarHub.

In the prepaid segment, revenue remained stable YoY as growth in customer base was offset by a decline in prepaid ARPU. The decline in the latter was mainly due to increased competition in the prepaid market, and reduced tariffs by all operators. Going forward, M1 expects this segment to remain competitive. During the quarter, M1 became the first operator to launch 3G prepaid service and its customers are now able to access richer mobile content, enjoy video calls and faster download speeds on mobile phones, previously only available to postpaid customers.

International call services saw an increase in both revenue and retail traffic in 2Q07. Apart from
increased IDD promotions to selected countries in the value segment (prefix “021” and 1818
International Calling Card), M1 also saw increase usage of its premier IDD service (prefix “002”) during the quarter.

Looking ahead, in terms of operating expenses, M1’s leased circuit cost is expected to trend upwards due to growing data usage and hence increasing network backhaul requirements. To address this, M1 has commenced evaluating alternative technologies and plans to move towards greater self-provision.

On 15 Jun 07, the IDA announced that the True Number Portability solution for both fixed and mobile services is expected to be implemented in 2Q08, rather than 4Q07 as previously expected.

M1, as part of a consortium with Hong Kong Broadband Pte Ltd, continues to participate in the IDA’s ongoing Request for Proposal process for the Next Generation National Broadband Network. This is a multi-stage process and IDA is expected to award the bid by end 2007.

Based on the current outlook, barring any unforeseen circumstances and assuming no material adverse change in economic conditions, the Company estimates a single-digit growth in profit after tax for the year 2007.

Source : SGX