Category: M1
M1 – DBSV
Declining handset subsidies
- 2Q14 net profit of S$43.9m (+12.1% y-o-y, +2.5% q-o-q) was 4-5% ahead our estimates. Declared interim DPS of 7Scts (+2.9% y-o-y) or 75% payout ratio
- Postpaid acquisition costs declined sharply, partly offset by a drop in International Call Service (IDD) revenue.
- BUY with TP of S$3.85 for mid single-digit growth and 4.6% yield
Highlights
Cost reduction offset weak IDD revenue. Postpaid acquisition cost per subscriber declined sharply to S$268 (-19% y-o-y, -13% q-o-q). It was partly offset by a drop in IDD revenue to S$23.7m (-20% y-o-y, -1% q-o-q).
Tiered data plan seeing fast adoption. About 58%of postpaid subscribers (54% in 1Q14) adopted the tiered data plan, with 20% (16%) exceeding their caps. M1 expects adoption of tiered plans to stabilise at around 65%.
M1 – OCBC
HOLD with new S$3.37 FV
- 1H14 NPAT met 52% of FY
- Interim 7c dividend
- Mobile segment holding up well
2Q14 results mostly in line
M1 Ltd reported its 2Q14 results last evening, with revenue easing 2.0% YoY (down 0.2% QoQ) to S$239.7m, mainly due to lower handset sales (down 17.5% YoY and 15.3% QoQ) and international call revenue (down 19.9% YoY and 1.4% QoQ). Mobile revenue remained strong, up 3.4% YoY and 2.5% QoQ at S$167.9m, driven by post-paid subscriber growth (+2.9% YoY and 0.9% QoQ) and higher data usage (monthly post-paid ARPU +3.5% YoY and 0.7% QoQ at S$55.5). As a result of lower operating expenses (down 6.0% YoY and 1.0% QoQ), net profit grew 12.2% YoY and 2.7% QoQ to S$39.2m. 1H14 revenue though fell 1.6% to S$479.8m, meeting 47% of our full-year forecast, net profit rose 8.2% to S$86.7m, or 52% of our FY14 estimate. M1 also declared an interim dividend of S$0.07/share, versus S$0.068 last year.
Keeps moderate earnings growth outlook
Going forward, management believes that it can continue to achieve moderate earnings growth (within the single-digit range), aided by increased mobile data usage. M1 managed to increase the number of customers on tiered pricing plans from 54% in 1Q14 to 58% in the quarter, with a higher number of them (20% versus 16% in 1Q14) exceeding their data bundles. Nevertheless, management believes that the number of subscribers on tiered plans is likely to stabilize around 65%. Separately, M1 also saw its fixed services’ ARPU stabilizing around S$41.9/month (+0.5% QoQ), which should continue to hold up as it has ended its promotion of giving away 3-6 months of free subscription. Still, competition may continue to remain intense. Last but not least, M1 has kept its S$130m capex guidance due to ongoing upgrades to its network to LTE-Advanced.
New S$3.37 fair value
As the results were mostly in line, we opt not to change our estimates. However, we are improving our DCF-based fair value from S$3.30 to S$3.37, underpinned by a reduction in the risk-free rate from 2.5% to 2.3% (reflecting the fall in SGS 10-year bond yields). But given the limited upside, we maintain HOLD.
M1 – OCBC
HOLD with new S$3.37 FV
- 1H14 NPAT met 52% of FY
- Interim 7c dividend
- Mobile segment holding up well
2Q14 results mostly in line
M1 Ltd reported its 2Q14 results last evening, with revenue easing 2.0% YoY (down 0.2% QoQ) to S$239.7m, mainly due to lower handset sales (down 17.5% YoY and 15.3% QoQ) and international call revenue (down 19.9% YoY and 1.4% QoQ). Mobile revenue remained strong, up 3.4% YoY and 2.5% QoQ at S$167.9m, driven by post-paid subscriber growth (+2.9% YoY and 0.9% QoQ) and higher data usage (monthly post-paid ARPU +3.5% YoY and 0.7% QoQ at S$55.5). As a result of lower operating expenses (down 6.0% YoY and 1.0% QoQ), net profit grew 12.2% YoY and 2.7% QoQ to S$39.2m. 1H14 revenue though fell 1.6% to S$479.8m, meeting 47% of our full-year forecast, net profit rose 8.2% to S$86.7m, or 52% of our FY14 estimate. M1 also declared an interim dividend of S$0.07/share, versus S$0.068 last year.
Keeps moderate earnings growth outlook
Going forward, management believes that it can continue to achieve moderate earnings growth (within the single-digit range), aided by increased mobile data usage. M1 managed to increase the number of customers on tiered pricing plans from 54% in 1Q14 to 58% in the quarter, with a higher number of them (20% versus 16% in 1Q14) exceeding their data bundles. Nevertheless, management believes that the number of subscribers on tiered plans is likely to stabilize around 65%. Separately, M1 also saw its fixed services’ ARPU stabilizing around S$41.9/month (+0.5% QoQ), which should continue to hold up as it has ended its promotion of giving away 3-6 months of free subscription. Still, competition may continue to remain intense. Last but not least, M1 has kept its S$130m capex guidance due to ongoing upgrades to its network to LTE-Advanced.
New S$3.37 fair value
As the results were mostly in line, we opt not to change our estimates. However, we are improving our DCF-based fair value from S$3.30 to S$3.37, underpinned by a reduction in the risk-free rate from 2.5% to 2.3% (reflecting the fall in SGS 10-year bond yields). But given the limited upside, we maintain HOLD.
TELCOs – Maybank Kim Eng
All in; SingTel raised to BUY
- Raise sector weighting to OVERWEIGHT as we upgrade SingTel to BUY. M1 remains our preferred BUY, followed by SingTel.
- M1 will enjoy stronger EPS CAGR of 8.5% over FY14E-16E, while SingTel is on the cusp of an earnings recovery of 5% EPS CAGR after three consecutive years of earnings decline.
- Growth pillars: Data monetisation and falling handset subsidies, with data roaming rebound a bonus.
Upgrade SingTel to BUY, sector to OVERWEIGHT
We upgrade SingTel to BUY with a SOTP-based TP of SGD4.35. We are now BUYers of all the three telcos, prompting us to raise the sector to OVERWEIGHT. In terms of preference, M1 remains our top choice, followed by SingTel which displaces StarHub to the third position. Despite challenges on the Pay TV and home broadband front, StarHub remains a BUY. We believe SingTel’s YTD under-performance and current low market expectations provide room for the stock to be re-rated ahead of StarHub.
Alignment of positive trends
In our view, the building blocks are fast falling in place and were evident in 1Q14 results. Data monetisation accelerated in 1Q14, driving mobile revenue to record levels with growth rate at its fastest in more than four quarters. Tiered data plan users have also hit new highs of more than 50%, and we expect 70% by year-end. Fast-falling handset subsidies are another positive trend that would benefit margins. Lastly, data roaming has finally stabilized after six quarters of YoY decline. The upshot: Stronger earnings growth prospects for the industry.
Catalysts: (1) Data monetisation could take place faster than expected with emphasis on video content to drive data usage. Both SingTel and StarHub are developing more local content for their apps. (2) Data roaming could make a comeback on plans to make it easier to activate or even kick in automatically when users are overseas. (3) Low levels of gearing, especially for M1 and StarHub, and the absence of large capex requirements in the medium term suggest room for higher dividends ahead.
Risks: As the telcos expand the capabilities of their networks to handle newer services such as VoLTE (Voice over LTE) and the greater demand for video content, there could be network outages. Regulatory fines aside, the key risk lies in higher user churn owing to unstable networks. One risk particular to SingTel is an acquisition of Shin Corp as was rumoured a few months ago, which we would view cautiously if it materialises.
TELCOs – Maybank Kim Eng
All in; SingTel raised to BUY
- Raise sector weighting to OVERWEIGHT as we upgrade SingTel to BUY. M1 remains our preferred BUY, followed by SingTel.
- M1 will enjoy stronger EPS CAGR of 8.5% over FY14E-16E, while SingTel is on the cusp of an earnings recovery of 5% EPS CAGR after three consecutive years of earnings decline.
- Growth pillars: Data monetisation and falling handset subsidies, with data roaming rebound a bonus.
Upgrade SingTel to BUY, sector to OVERWEIGHT
We upgrade SingTel to BUY with a SOTP-based TP of SGD4.35. We are now BUYers of all the three telcos, prompting us to raise the sector to OVERWEIGHT. In terms of preference, M1 remains our top choice, followed by SingTel which displaces StarHub to the third position. Despite challenges on the Pay TV and home broadband front, StarHub remains a BUY. We believe SingTel’s YTD under-performance and current low market expectations provide room for the stock to be re-rated ahead of StarHub.
Alignment of positive trends
In our view, the building blocks are fast falling in place and were evident in 1Q14 results. Data monetisation accelerated in 1Q14, driving mobile revenue to record levels with growth rate at its fastest in more than four quarters. Tiered data plan users have also hit new highs of more than 50%, and we expect 70% by year-end. Fast-falling handset subsidies are another positive trend that would benefit margins. Lastly, data roaming has finally stabilized after six quarters of YoY decline. The upshot: Stronger earnings growth prospects for the industry.
Catalysts: (1) Data monetisation could take place faster than expected with emphasis on video content to drive data usage. Both SingTel and StarHub are developing more local content for their apps. (2) Data roaming could make a comeback on plans to make it easier to activate or even kick in automatically when users are overseas. (3) Low levels of gearing, especially for M1 and StarHub, and the absence of large capex requirements in the medium term suggest room for higher dividends ahead.
Risks: As the telcos expand the capabilities of their networks to handle newer services such as VoLTE (Voice over LTE) and the greater demand for video content, there could be network outages. Regulatory fines aside, the key risk lies in higher user churn owing to unstable networks. One risk particular to SingTel is an acquisition of Shin Corp as was rumoured a few months ago, which we would view cautiously if it materialises.