Category: M1
M1 – CIMB
Muted tone
Our recent visit to M1 left our views unchanged. Any re-rating catalysts will depend on improvements relating to LTE and NGNBN, we feel. Take-up of fibre remains slow owing to issues at OpenNet.
The regulator has stepped in to resolve issues such as bureaucracy and installation capacity at OpenNet. Lacking re-rating catalysts, we remain Neutral and keep our DCF target price (WACC 7.9%). Switch to StarHub which has capital-management potential, in our view.
Benign competition, eyeing higher LTE price
There are no competitive hotspots emerging in the mobile space. M1 has stopped offering unlimited mobile broadband to new customers. It has launched LTE services but only to corporate users and then limited to the central business district and industrial areas. M1 plans to raise LTE prices when subscribers expand in 2H12. SingTel also has plans to raise LTE prices when coverage reaches a larger part of the country.
Catalysing NGNBN
Along with the other service providers, M1 has submitted its response to the regulator on the provision of services to NGNBN and is awaiting response from the IDA. Among the matters raised are bureaucratic issues; revision of installation quota, and inconsistent data between OpenNet and access seekers.
Potentially higher capex
M1’s capex could rise on the back of more stringent regulatory requirements for mobile coverage. M1 has not revealed numbers as it is still in dialogue with the regulator on more reasonable coverage terms.
Lacking catalysts
M1 continues to lack re-rating catalysts, in our view. Such catalysts could come from raising data prices, resolving matters with NGNBN, and clarity on its capex from the regulator’s plans to boost service quality. M1 noted a slight improvement in OpenNet’s attitude to resolving issues but much more would need to be done. Switch to StarHub, which is likely to manage capital in the form of a special DPS/capital repayment in 2H12, on top of its attractive recurring 20ct DPS.
M1 – Kim Eng
Margin concerns fading
Upgrade to Buy. We expect margin concerns for M1 to fade for a while as the new iPad should not cause a dent, the iPhone 5 launch is unlikely till October 2012 and the telco appears to have shed its previous aggressive stance on fibre, even as the government steps in to smoothen NBN rollout issues. Upgrade to Buy with a target price of $2.85 (including DPS of $0.145) for a total return of 14%.
No adverse margin impact expected from new iPad. When Apple’s new iPad comes onto the market, expected to be available today, we do not expect M1 to suffer a margin upset. The iPad tends to have a much smaller impact on subscriber acquisition costs than the iPhone. In fact, with all the telcos making a concerted break away from unlimited data caps on their new iPad plans (now only 10GB bundled), we are hopeful tablets will play a larger role in boosting data ARPUs.
Easing up on aggressive fibre stance. M1 appears to be easing up on its aggressive stance on fibre. At the recent IT Show 2012, it raised its promotional monthly rate for 100Mbps home fibre broadband from $39 to $45, putting it closer to SingTel’s rate of $49.90 and StarHub’s $49.65. Even so, M1’s rate is still considered attractive vis-à-vis its peers because its price point is lower and it also includes a bundled mobile broadband plan with 5GB data cap.
Enough time for margins to recover. With the new iPad out on the market, the next iPhone (iPhone 5 or just the new iPhone?) is not expected to be launched until October. This is in line with the timing of the iPhone 4S last year, when Apple pushed back the rollout date from a traditional June launch closer to the year-end holiday season. M1’s margins had taken a beating in 4Q11, hence this will give it time – at least two quarters – for its margins to recover.
Fibre to get higher speed limit, positive for M1. The government has finally stepped in to force OpenNet to be more responsive to market needs. As OpenNet works on increasing its permanent installation capacity and comes out with a way to better handle demand fluctuations, we anticipate faster growth in fibre net-adds this year. NGNBN take-up has been slow last year, but if the teething issues are resolved, this will be a positive catalyst for M1.
TELCOs – OCBC
4QCY11 REVIEW – OVERWEIGHT
•Mobile business still resilient
•Stable 2012 outlook
•Defensive earnings, attractive yields
Decent 4CY11 showing from M1, StarHub
Both M1 and StarHub both met our forecasts at the recent 4QCY11 results, although SingTel slightly disappointed due to its volatile Associates contribution. StarHub declared a quarterly dividend of S$0.05/share, while M1 declared a final dividend of S$0.079/share.
Review of Singapore mobile operations
SingTel continues to dominate with a ~47% post-paid market share, followed by StarHub with ~28% and M1 ~26%. Overall, the post-paid subscriber base grew by 62k QoQ to 4029k, with the bulk coming from SingTel (+44k). And due to limited availability of iPhone 4S handsets, we note that all the three telcos saw increased monthly churn, with M1 having highest (1.4%). Both SingTel and StarHub recorded modest improvements in monthly ARPUs while M1 saw a slight decline. Meanwhile, comments from all the three telcos suggest that a revamp of the generous data package currently for smartphones is likely when they launch LTE later this year.
Stable 2012 outlook
Going forward, all the three telcos expect their Singapore operations to remain stable or show modest growth, buoyed by continued customer additions and increasing mobile data usage. But with more smartphone users likely to use data-based means to communicate, we expect EBITDA margins to remain flat or even trend slightly lower. Nevertheless, the telcos have kept their dividend payout guidance, thus keeping their yields attractive.
Maintain OVERWEIGHT
The telco shares have underperformed the broader market YTD, whereas the STI has surged some 12.6%. But with markets likely to remain volatile, we believe that the telcos’ defensive earnings and attractive yields offer a safe harbour for the less risk-adverse investors. Maintain OVERWEIGHT.
TELCOs – OCBC
4QCY11 REVIEW – OVERWEIGHT
•Mobile business still resilient
•Stable 2012 outlook
•Defensive earnings, attractive yields
Decent 4CY11 showing from M1, StarHub
Both M1 and StarHub both met our forecasts at the recent 4QCY11 results, although SingTel slightly disappointed due to its volatile Associates contribution. StarHub declared a quarterly dividend of S$0.05/share, while M1 declared a final dividend of S$0.079/share.
Review of Singapore mobile operations
SingTel continues to dominate with a ~47% post-paid market share, followed by StarHub with ~28% and M1 ~26%. Overall, the post-paid subscriber base grew by 62k QoQ to 4029k, with the bulk coming from SingTel (+44k). And due to limited availability of iPhone 4S handsets, we note that all the three telcos saw increased monthly churn, with M1 having highest (1.4%). Both SingTel and StarHub recorded modest improvements in monthly ARPUs while M1 saw a slight decline. Meanwhile, comments from all the three telcos suggest that a revamp of the generous data package currently for smartphones is likely when they launch LTE later this year.
Stable 2012 outlook
Going forward, all the three telcos expect their Singapore operations to remain stable or show modest growth, buoyed by continued customer additions and increasing mobile data usage. But with more smartphone users likely to use data-based means to communicate, we expect EBITDA margins to remain flat or even trend slightly lower. Nevertheless, the telcos have kept their dividend payout guidance, thus keeping their yields attractive.
Maintain OVERWEIGHT
The telco shares have underperformed the broader market YTD, whereas the STI has surged some 12.6%. But with markets likely to remain volatile, we believe that the telcos’ defensive earnings and attractive yields offer a safe harbour for the less risk-adverse investors. Maintain OVERWEIGHT.
M1 – BT
Analysts lower expectations of M1
ANALYSTS found little cause for excitement in M1’s full-year results that were released on Monday, with earnings falling just a hair short of some expectations and the outlook for the year ahead being a guarded one.
Full-year net profit came in at $164.1 million, about 1.4 per cent below Kim Eng Research’s forecast of $166.5 million and half a per cent shy of OCBC Investment Research’s estimates.
Revenue, which rose 8.8 per cent to $1.06 billion, beat OCBC’s estimate by about 4 per cent, driven by stronger handset sales. Phillip Securities Research analyst Derrick Heng noted that ‘M1 uses a fair value accounting method to record the sales of its iPhones that partly contributed to the strong top line recorded for its handset sales’.
Mr Heng, who downgraded the counter to ‘reduce’, also pointed out that even with higher value smartphone plans sold, postpaid average revenue per user (Arpu) was ‘only stable sequentially and declined by 1.6 per cent y-o-y in Q4 FY2011’. ‘We view that as a reflection of the inability to monetise mobile service revenue, in spite of high subsidy on the more expensive smart phones.’
DBS’s Sachin Mittal also believes that ‘each smartphone customer is more profitable initially due to fair value accounting and M1 may see a more adverse impact from the slowdown’. He maintained his ‘hold’ call on the stock, with a target price of $2.60.
Some analysts also appear to have tempered upbeat expectations of how M1 stands to gain from the rollout of the Next Generation Nationwide Broadband Network (NGNBN), at least in the near term.
‘(M1) expects fixed-data growth to pick up on the back of greater awareness among consumers of NGNBN which should pass 95 per cent of premises by mid-2012 from 84 per cent at end-2011,’ said CIMB Research’s Kelvin Goh and Justin Law in a report. ‘However, much of this is beyond M1’s control as progress would depend on OpenNet’s ability to connect premises with fibre. As for now, connection times are about three weeks, longer than the KPI of six days.’
CIMB has a ‘neutral’ call on M1.
Analysts also took their cue from the telco’s expectations of a ‘stable performance’ in 2012. M1 had warned that roaming revenue might be affected if a global slowdown were to dampen travel as well.
M1 closed five cents lower at $2.51 yesterday.