On track to meet targets

At a Glance

• 3Q09 net profit of S$34.2m in line with our expectations
• Market share steady at 25.6%, recently concluded iPhone deal should enhance competitive status.
• Management upped the FY09F capex guidance to S$120m due to quicker than expected rollout. The backhaul cost savings of over S$10m in FY10F is on schedule.
• BUY for 7% FY10F EPS growth and 7.3% dividend yield.

Comment on Results

3Q09 net profit of S$34.2m, on the back of a 4% y-o-y fall in revenue to S$188m, was in line with our projection of S$35m. Revenues were affected by lower ARPUs (competitive tariffs) in the postpaid segment and bundling discounts on prepaid offerings. However, operating expenses also declined 4.4% owing to lower staff costs and facilities expenses, thus preserving margins.

Operating metrics showed a mixed performance – growth in volume accompanied by lower ARPUs – but mobile market share remained constant at 25.6%. Net new adds totaled 49,000 in 3Q09, largely driven by prepaid acquisitions. However, postpaid and prepaid ARPUs both fell, by 1.3% and 5.2% q-o-q respectively, owing to competitive pricing tactics. Data contribution to revenue continued to improve, growing to 11.9% in 3Q09 from 10.9% in 2Q09.

Outlook & Recommendation

The backhaul network, which is expected to yield cost savings of S$10-15m in FY10, is on schedule and management upped the FY09 capex guidance to S$120m, as work is progressing faster than previously expected. The Qala integration is also on track, as is the work on operational readiness for commercial launch of NGNBN fixed broadband offerings by 2Q-2010.

Dividend yield in excess of 7% look secure, as market share concerns have been further eroded by the recent iPhone deal with Apple.

M1’s Q3 profit down 0.7% to $34.2m

Customers continue to rein in cell phone usage and overseas calls amid uncertain outlook

MOBILEONE’S net profit slipped marginally in the third quarter as consumers continue to rein in cell phone usage and overseas calls amid the uncertain economic outlook.

Net income for the three months ended Sept 30 was $34.2 million, down 0.7 per cent from $34.4 million a year back.

Earnings per share were flat at 3.8 cents, while revenue fell 4.2 per cent to $188.4 million, from $196.7 million in the previous corresponding period.

‘General economic sentiment improved in the third quarter but operating conditions still remain challenging, without a firm or sustainable rebound in spending. Near-term operating revenue will therefore remain under pressure,’ M1 CEO Karen Kooi said in a statement yesterday.

Singapore’s smallest telco continues to see weakness across its two main business lines, as customers keep within their subscription bundles and refrain from making overseas calls.

Mobile revenue slid 5.6 per cent to $140.8 million in Q3. The decline was higher among post-paid subscribers, with sales from this customer segment falling 5.9 per cent to $122.7 million. Pre-paid revenue declined 3.6 per cent to $18.1 million.

M1 added 11,000 post-paid customers and 86,000 pre-paid subscribers in Q3 to lift its user base to 1.72 million.

Revenue from international call services fell 1.6 per cent to $31.8 million during the quarter, while fixed network sales were $600,000.

This is the first time M1 has incorporated revenue from its fixed network business into its earnings scorecard, after its foray into consumer broadband in August 2008.

M1 is now tapping on StarHub’s cable infrastructure to provide Internet connectivity, but this could change when Singapore’s new fibre-optic broadband highway becomes partly operational in 2010.

‘The fixed-line services should also pick up momentum with the commercial launch of the Next Generation National Broadband Network next year,’ Ms Kooi noted.

Besides fixed-line broadband, M1 hopes its mobile fortunes could benefit from the iPhone later this year.

On Tuesday, M1 became the second local telco to be given a bite at Apple’s coveted touch-screen handset, breaking Singapore Telecom’s year-long stranglehold on the device.

M1’s iPhone launch date and pricing have not been disclosed.

‘We see exciting opportunities in the upcoming launch of the iPhone,’ Ms Kooi said. ‘We will continue to launch new mobile services and grow our fixed-line business to drive topline revenue growth.’

For the first nine months of this year M1’s net profit was down 0.3 per cent to $113.1 million on a 6.7 per cent drop in revenue to $565.3 million.

The company expects profit after tax for the full year to be comparable to that last year – around $150.1 million.

M1 shares closed 1.6 per cent lower at $1.85 yesterday before the company’s Q3 earnings were released.