Trading at ~8 yield

• Net profit of S$42.5m beat our S$40m forecast due to lower depreciation charge

• FY11F/12F profit raised by 4% each after adjusting for lower depreciation; cost saving is non-cash items, but dividends are tied to earnings

• M1 is trading at projected 7.7% yield (bi-annual payment) versus 7.1% for StarHub (quarterly)

Unexciting mobile ARPU trend. A slight concern is the mild drop in adjusted postpaid ARPU to S$56.1 from S$58.8 in 4Q10 and S$59.6 in 3Q10. This may be due to seasonality and fair value accounting. Additional data-revenue seems to be lower than expected and M1 could be overstating handset revenue at the cost of future service revenue. A key positive was lower depreciation and amortization expense, which stood at S$25m versus S$30m in 4Q10 and S$28m in 1Q10, as some assets were fully depreciated.

Steady progress in non-mobile business. New fixed business revenue was S$7m, up 9% QoQ and 19% YoY. M1 estimates it has one third of the ~16K customers that are using the National Broadband Network. It believes competition among international bandwidth providers ensured leasing was a viable option for its fixed line business.

DCF-based TP remains S$2.60 (WACC 8.4%, terminal growth 0%). M1 projects S$100m capex in 2011, excluding S$22m paid recently for spectrum, which would be used for 4G-LTE rollout. Although its official dividend policy is 80% minimum payout, we project M1 to maintain 100% payout like in 2010, given its solid free cash flow and below 1x net debt to FY11F EBITDA.

Trading at ~8 yield

• Net profit of S$42.5m beat our S$40m forecast due to lower depreciation charge

• FY11F/12F profit raised by 4% each after adjusting for lower depreciation; cost saving is non-cash items, but dividends are tied to earnings

• M1 is trading at projected 7.7% yield (bi-annual payment) versus 7.1% for StarHub (quarterly)

Unexciting mobile ARPU trend. A slight concern is the mild drop in adjusted postpaid ARPU to S$56.1 from S$58.8 in 4Q10 and S$59.6 in 3Q10. This may be due to seasonality and fair value accounting. Additional data-revenue seems to be lower than expected and M1 could be overstating handset revenue at the cost of future service revenue. A key positive was lower depreciation and amortization expense, which stood at S$25m versus S$30m in 4Q10 and S$28m in 1Q10, as some assets were fully depreciated.

Steady progress in non-mobile business. New fixed business revenue was S$7m, up 9% QoQ and 19% YoY. M1 estimates it has one third of the ~16K customers that are using the National Broadband Network. It believes competition among international bandwidth providers ensured leasing was a viable option for its fixed line business.

DCF-based TP remains S$2.60 (WACC 8.4%, terminal growth 0%). M1 projects S$100m capex in 2011, excluding S$22m paid recently for spectrum, which would be used for 4G-LTE rollout. Although its official dividend policy is 80% minimum payout, we project M1 to maintain 100% payout like in 2010, given its solid free cash flow and below 1x net debt to FY11F EBITDA.

M1 profit up 8.2% to $42.5m in Q1

M1’s first-quarter net profit climbed 8.2 per cent to $42.5 million, from $39.3 million last year, as the burden of heavy handset subsidies starts to ease this year.

Earnings per share for the three months ended March 31 came in at 4.7 cents, up from 4.4 cents last year.

First-quarter revenue grew 3.5 per cent to $257.6 million, from $249 million in 2010 due to a combination of higher mobile subscription and handset sales, as well as increased contribution from M1’s broadband business. Revenue from mobile services – which accounts for nearly two-thirds of the firm’s sales – edged up 1.3 per cent to $145.3 million in Q1.

Both postpaid and prepaid segments turned in a better scorecard, with revenue growing 1.3 per cent and 1.8 per cent year-on-year as M1 added 23,000 more mobile customers during the period.

The latest additions took its cellular subscriber base to 1.934 million, an increase of 7.7 per cent from 2010.

Last year, all three local telcos were hit by the smartphone wave as consumers flocked towards so-called smartphones such as the Apple iPhone.

While the gadget fever resulted in higher customer numbers, their bottom lines had to take a short-term hit as these phones came with higher upfront subsidies. However, the bane is now easing with M1’s operating expenses growing a moderate 2.3 per cent in the first quarter to $204.8 million.

In 2010, the firm’s operating expenses climbed a staggering 30.5 per cent largely due to heavy smartphone subsidies.

Revenue from its international calls was almost flat in Q1 at $32.3 million but M1’s broadband diversification continues to pay off with its fixed services revenue climbing 19.2 per cent to $7 million.

‘For 2011, we see exciting opportunities in the fixed segment, driven by enhanced experience on the new fibre network and progressive expansion of its coverage,’ M1 chief executive Karen Kooi said in a statement yesterday. ‘Growth in the mobile segment will be driven by increased adoption of tablets and other mobile broadband devices.’

Looking ahead to the full year, Ms Kooi expects to see an improvement to M1’s bottom line if operating conditions remain stable.

The counter closed two cents lower at $2.41 yesterday.

M1 profit up 8.2% to $42.5m in Q1

M1’s first-quarter net profit climbed 8.2 per cent to $42.5 million, from $39.3 million last year, as the burden of heavy handset subsidies starts to ease this year.

Earnings per share for the three months ended March 31 came in at 4.7 cents, up from 4.4 cents last year.

First-quarter revenue grew 3.5 per cent to $257.6 million, from $249 million in 2010 due to a combination of higher mobile subscription and handset sales, as well as increased contribution from M1’s broadband business. Revenue from mobile services – which accounts for nearly two-thirds of the firm’s sales – edged up 1.3 per cent to $145.3 million in Q1.

Both postpaid and prepaid segments turned in a better scorecard, with revenue growing 1.3 per cent and 1.8 per cent year-on-year as M1 added 23,000 more mobile customers during the period.

The latest additions took its cellular subscriber base to 1.934 million, an increase of 7.7 per cent from 2010.

Last year, all three local telcos were hit by the smartphone wave as consumers flocked towards so-called smartphones such as the Apple iPhone.

While the gadget fever resulted in higher customer numbers, their bottom lines had to take a short-term hit as these phones came with higher upfront subsidies. However, the bane is now easing with M1’s operating expenses growing a moderate 2.3 per cent in the first quarter to $204.8 million.

In 2010, the firm’s operating expenses climbed a staggering 30.5 per cent largely due to heavy smartphone subsidies.

Revenue from its international calls was almost flat in Q1 at $32.3 million but M1’s broadband diversification continues to pay off with its fixed services revenue climbing 19.2 per cent to $7 million.

‘For 2011, we see exciting opportunities in the fixed segment, driven by enhanced experience on the new fibre network and progressive expansion of its coverage,’ M1 chief executive Karen Kooi said in a statement yesterday. ‘Growth in the mobile segment will be driven by increased adoption of tablets and other mobile broadband devices.’

Looking ahead to the full year, Ms Kooi expects to see an improvement to M1’s bottom line if operating conditions remain stable.

The counter closed two cents lower at $2.41 yesterday.