Category: M1
M1 – BT
M1’s Q2 profit up 5% to $42.8m
Higher mobile and broadband revenue helps offset increase in handset costs
M1’s second-quarter net profit grew 5 per cent to $42.8 million, from $40.8 million a year earlier as higher mobile and broadband revenue helped offset a continued increase in handset costs.
Earnings per share for the three months ended June 30 rose to 4.7 cents, from 4.5 cents in 2010. Second-quarter sales climbed 10 per cent to $245.4 million, from $223.1 million.
For the first six months of this year, M1’s net profit rose 6.6 per cent to $85.4 million on the back of a 6.5 per cent improvement in sales to $503 million.
With its improved performance, Singapore’s smallest operator is proposing an interim dividend of 6.6 cents per share, to be paid next month, up from 6.3 cents in 2010.
In the second quarter, M1 added 34,000 mobile subscribers to take its customer tally to 1.97 million. Revenue from cellular services edged up 2.1 per cent during the period to $147.7 million.
The operator continues to see a strong demand for smart phones in Q2. This pushed up handset costs which in turn hiked Q2 operating expenses by 11.4 per cent year on year to $192.3 million.
To cope with the heightened demand for mobile bandwidth from smart phone and tablet users, M1 became the first local telco to introduce Long-Term Evolution (LTE) or so-called 4G services last month.
Coverage for its new LTE network is mostly confined to the financial district for now but it expects nationwide deployment to be achieved by the first quarter of 2012, according to M1’s CEO Karen Kooi.
M1’s nascent broadband venture turned in the highest improvement in the second quarter as the rollout of Singapore’s Next-Gen NBN (National Broadband Network) continues to gather steam.
Fixed services sales soared 61.3 per cent on year to $9.9 million as the operator dangled attractive promotions to snap up more customers for its fibre-optic broadband services.
Close to 70 per cent of the island is now covered by the new network. However, the actual percentage of local homes that are wired up and ready for fibre-optic services is far lower at just under 40 per cent, Ms Kooi revealed.
This resulted from a combination of factors, including initial resistance from the management committees of condominiums, as well as a low awareness of the government-backed NBN project among HDB dwellers, she added.
‘All stakeholders are working to resolve this,’ Ms Kooi said in a conference call yesterday.
The only business segment to turn in a poorer Q2 was international call services. Revenue from this segment dipped nearly 2 per cent to $30.9 million.
Looking ahead, Ms Kooi said she expects the implementation of the government’s cross-carriage policy on Aug 1 to open up new business opportunities for M1.
Introduced in March last year, the mandate forces pay-TV operators to allow their rivals to carry any exclusive programme they acquire. The policy was supposed to kick in last year but authorities pushed it back by nine months to give industry players more time to adjust to the new regime.
‘The whole pay-TV landscape may well change,’ Ms Kooi said, adding it could potentially allow consumers to purchase programmes on an a la carte basis instead of being forced to take up a bundle.
Looking ahead, she expects M1 to register an improvement in full-year net income, while dividend payout ratio will be kept at 80 per cent of its net profit after tax.
M1 shares closed unchanged at $2.57 before its second-quarter earnings were released.
TELCOs – DBSV
2Q11F Preview and key sector issues
• 2Q11F earnings of StarHub & M1 are likely to reinforce sector’s appeal as bastion of stability.
• Potential decline in smartphone sales in 2H11F to benefit StarHub more; Downgrade M1 to HOLD after its recent run-up.
• Cross-carriage to start from Aug 1, but may not have sharp teeth to make a difference.
2Q11F earnings should reaffirm sector’s defensive appeal. M1 is likely to report 2Q11 earnings of S$42.5m (0% QoQ, +4% YoY) on 14th July, as its fair value accounting may not leave much scope for improvement. StarHub is likely to report 2Q11 earnings of S$74m (+7% QoQ, +27% YoY) on 4th August in a seasonally strong 2Q as it recovers from the impact of “dunning” in 1Q11.
Potential decline in smartphone sales in 2H11F & FY12F may benefit StarHub. High penetration of smart phones (60-65%) in Singapore may imply lower smartphone sales in 2H11F, implying lower subsidy burden
at StarHub & SingTel. Lower smartphone sales, on the other hand, may adversely impact M1’s earnings due to its unique practice of fair value accounting. While M1 is a key beneficiary of National Broadband Network, it may take another 2-3 years to show significant profit contribution from the new business.
StarHub is our new top pick after M1’s recent outperformance. YTD total returns are 15% for M1 (our previous top pick) versus 11% for StarHub and –1% for STI. At current price, M1 offers 6-7% dividend yield based on 80-100% payout ratio vs assured 7% for StarHub. MI offers flat earnings in FY12F versus mid-single digit growth at StarHub.
Cross-carriage to start from Aug 1, but impact may be muted. Cross-carriage applies only to the “exclusive” content signed after Mar 12, 2010. Firstly, StarHub has locked-in most of the popular content on exclusive basis before Mar 12 for 3-5 years. Secondly, content can still be signed on “non-exclusive” basis where pay TV operators negotiate the price as opposed to bidding earlier. As long as other pay TV operators do not buy “non-exclusive” content rights, they would not be able to cross-carry those contents.
TELCOs – DBSV
2Q11F Preview and key sector issues
• 2Q11F earnings of StarHub & M1 are likely to reinforce sector’s appeal as bastion of stability.
• Potential decline in smartphone sales in 2H11F to benefit StarHub more; Downgrade M1 to HOLD after its recent run-up.
• Cross-carriage to start from Aug 1, but may not have sharp teeth to make a difference.
2Q11F earnings should reaffirm sector’s defensive appeal. M1 is likely to report 2Q11 earnings of S$42.5m (0% QoQ, +4% YoY) on 14th July, as its fair value accounting may not leave much scope for improvement. StarHub is likely to report 2Q11 earnings of S$74m (+7% QoQ, +27% YoY) on 4th August in a seasonally strong 2Q as it recovers from the impact of “dunning” in 1Q11.
Potential decline in smartphone sales in 2H11F & FY12F may benefit StarHub. High penetration of smart phones (60-65%) in Singapore may imply lower smartphone sales in 2H11F, implying lower subsidy burden
at StarHub & SingTel. Lower smartphone sales, on the other hand, may adversely impact M1’s earnings due to its unique practice of fair value accounting. While M1 is a key beneficiary of National Broadband Network, it may take another 2-3 years to show significant profit contribution from the new business.
StarHub is our new top pick after M1’s recent outperformance. YTD total returns are 15% for M1 (our previous top pick) versus 11% for StarHub and –1% for STI. At current price, M1 offers 6-7% dividend yield based on 80-100% payout ratio vs assured 7% for StarHub. MI offers flat earnings in FY12F versus mid-single digit growth at StarHub.
Cross-carriage to start from Aug 1, but impact may be muted. Cross-carriage applies only to the “exclusive” content signed after Mar 12, 2010. Firstly, StarHub has locked-in most of the popular content on exclusive basis before Mar 12 for 3-5 years. Secondly, content can still be signed on “non-exclusive” basis where pay TV operators negotiate the price as opposed to bidding earlier. As long as other pay TV operators do not buy “non-exclusive” content rights, they would not be able to cross-carry those contents.
TELCOs – OCBC
Mandatory cross-carriage from 01 Aug 11
Makes cross-carriage mandatory from 2 Jul 11. The MDA (Media Development Authority) has announced that Pay TV service providers will have to implement the cross-carriage measure from 2 Jul 11; this as it has gazetted the amendments to the Media Market Conduct Code 2010 (MMCC 2010) on 1 Jul, effectively brining closure to its extensive consultation process which started on 12 Mar 2010. In a nutshell, Pay TV providers will have to cross-carry each other’s content that is acquired or renewed on an exclusive basis; this also means that Pay TV customers will be able to watch all Pay TV content with their preferred operator and need not pay any extra fee for doing so.
Implementation of framework from 1 Aug 11. However, MDA has extended the implementation date of the cross carriage measure to 1 Aug 11 in consideration of the industry’s views that there was a need to put the necessary systems and infrastructure in place to certify the content security measures before implementing the measure. And to facilitate the implementation, MDA has also issued guidelines on the content security protection requirements on 1 Jul. Some of the key technical issues include the piping of exclusive content from one operator to another, the encryption and decryption of the content. Operational issues include subscription and billing, difficulty in individual pricing due to bundling practices, ownership of technical glitches etc.
But likely to be non-event for now. But we understand that the two main operators – SingTel and StarHub – have not signed any “qualified content” after the announcement of the mandate in Mar 2010 to date. As such, there will not be any content that needs to be made available for cross carriage as yet; this also means that the implementation of the cross-carriage measure is likely to be a non-event for them as well as consumers until the signing of the first exclusive content. Nevertheless, the cross-carriage mandate could still mean better deals for consumers in the future as Pay TV operators may not bid as aggressively for coveted content as before; rising content cost was also why MDA introduced the measure in the first place.
Content is still king. Having said that, we still believe that content is king and we do not foresee a sharp drop in content cost, as Pay TV operators will still want to “own” exclusive content; this as they will still be able to enjoy revenue from subscription and advertising. As we see this development as a long-term positive, we maintain our OVERWEIGHT rating on the sector.
TELCOs – OCBC
Mandatory cross-carriage from 01 Aug 11
Makes cross-carriage mandatory from 2 Jul 11. The MDA (Media Development Authority) has announced that Pay TV service providers will have to implement the cross-carriage measure from 2 Jul 11; this as it has gazetted the amendments to the Media Market Conduct Code 2010 (MMCC 2010) on 1 Jul, effectively brining closure to its extensive consultation process which started on 12 Mar 2010. In a nutshell, Pay TV providers will have to cross-carry each other’s content that is acquired or renewed on an exclusive basis; this also means that Pay TV customers will be able to watch all Pay TV content with their preferred operator and need not pay any extra fee for doing so.
Implementation of framework from 1 Aug 11. However, MDA has extended the implementation date of the cross carriage measure to 1 Aug 11 in consideration of the industry’s views that there was a need to put the necessary systems and infrastructure in place to certify the content security measures before implementing the measure. And to facilitate the implementation, MDA has also issued guidelines on the content security protection requirements on 1 Jul. Some of the key technical issues include the piping of exclusive content from one operator to another, the encryption and decryption of the content. Operational issues include subscription and billing, difficulty in individual pricing due to bundling practices, ownership of technical glitches etc.
But likely to be non-event for now. But we understand that the two main operators – SingTel and StarHub – have not signed any “qualified content” after the announcement of the mandate in Mar 2010 to date. As such, there will not be any content that needs to be made available for cross carriage as yet; this also means that the implementation of the cross-carriage measure is likely to be a non-event for them as well as consumers until the signing of the first exclusive content. Nevertheless, the cross-carriage mandate could still mean better deals for consumers in the future as Pay TV operators may not bid as aggressively for coveted content as before; rising content cost was also why MDA introduced the measure in the first place.
Content is still king. Having said that, we still believe that content is king and we do not foresee a sharp drop in content cost, as Pay TV operators will still want to “own” exclusive content; this as they will still be able to enjoy revenue from subscription and advertising. As we see this development as a long-term positive, we maintain our OVERWEIGHT rating on the sector.