Category: M1
M1 – CIMB
Growth momentum to continue
3Q09 results preview
Maintain Neutral, target price of S$2.00 and earnings forecasts. We maintain our earnings forecasts and DCF-based target price of S$2.00 (WACC: 9.5%, LT growth: 1%) for M1. M1 remains our top pick in the sector despite our NEUTRAL rating. While we see a lack of price catalysts, downside should be limited by its attractive yields of 8% and best exposure to wireless broadband and NGNBN. We remain UNDERWEIGHT on the sector as we prefer higher-beta sectors given our positive view of the market.
Growth trajectory to continue. M1 is slated to release 3Q09 results on 16 Oct. The growth shown in 2Q should continue in 3Q. We expect core net profit growth of 2-8% qoq to hit the S$38m-40m mark, up 10-18% yoy, although we note that 3Q08 was marred by MNP-related costs. Sales growth should be 3-5% qoq or 0-2% yoy while EBITDA margins should be flat qoq. We believe that 3Q09 sales would continue to improve as usage should perk up as the economy comes out of a recession and as IDD and roaming revenue begins to flow in again. The development of its wireless broadband business (mobile data was about 10.9% of 2Q09 service revenue) should provide another fillip to growth. Finally, M1 has been emphasising new customer segments such as youths and foreign professionals.
Cost controls in place. M1’s unyielding focus on cost containment has helped to sustain and even lift its margins, although masked by Take 3. 2Q09 EBITDA margins touched 41% from 38.6% in 1Q08. We believe that active cost controls would continue, especially in the areas of staff costs (9.4% of revenue), leased circuit costs as it builds its own backhaul (6.8%) and other cost of sales (10.4%).
iPhone deal. M1 announced that it has reached an agreement with Apple to import iPhones into Singapore, which would break SingTel’s exclusivity on this handset. Details on pricing, tariffs and availability will be released over the next 3-5 weeks.
Slightly positive. We are slightly positive over the deal as the appeal of the phone should help shield M1 from churns and allow it to protect and even raise its market share. Moreover, we see the iPhone as an ARPU stimulator through higher data usage. SingTel has revealed in the past that ARPUs from iPhone users are 1.5x higher than from normal postpaid users.
On the flipside, we believe that M1 will be fairly aggressive on pricing and will have to absorb the resultant margin impact as it expenses costs upfront. It has yet to decide whether to include the iPhone as part of Take 3. Even if included, most handsets should still remain sold on non-Take 3 plans. On top of that, we believe that SingTel has locked up the bulk of the pent-up demand for this phone and M1 would be left with more marginal users or slower adopters.
M1 – BT
Monopoly ends as M1 hooks up with iPhone
SingTel’s exclusive reign over, iPhone prices may fall
MobileOne has finally been given a bite at the iPhone, a move which breaks Singapore Telecommunications’s year-long stranglehold on the coveted touch-screen handset.
The iPhone will go on sale at M1 stores within the next two months after Singapore’s smallest operator announced yesterday that it has sealed an agreement with Apple to bring in the device.
New M1 price plans will also be introduced to accompany the iPhone but these will only be announced closer to the launch date, the firm said a briefly-worded statement.
As reported by BT on Monday, Apple has been in talks with both M1 and StarHub in the last few months as part of its global strategy to ramp up iPhone sales but a deal could not be reached earlier despite repeated appeals from their customers.
The need to commit to a high sales volume and revenue-sharing were among the factors which led to the initial impasse. This left SingTel with a default monopoly on the iPhone even though exclusivity is not a condition in its contract.
With the conclusion of the M1-Apple deal, StarHub stands as the only local telco without access the touch-screen gizmo. However, company spokesman Michael Sim said that StarHub is ‘still interested to bring the iPhone’ to its customers.
SingTel was given first dibs at selling the iPhone 3G in Singapore in August last year and this arrangement was extended to the latest model – the iPhone 3GS – this July.
Consumers currently pay nothing to $678 for an iPhone at SingTel, depending on the choice of subscription plan. With the loss of its exclusive reseller rights, market watchers say that iPhone prices could fall to reflect the new market duopoly.
‘With SingTel losing its reseller rights to the exclusive iPhone, pricing is likely to come down, implying higher subsidies,’ said DBS Vickers analyst Sachin Mittal.
‘The iPhone has always been a multi-operator offering in Australia, its strongest market in APEJ (Asia-Pacific excluding Japan),’ added Aloysius Choong, a research manager with technology analyst firm IDC Asia-Pacific.
While a smaller price tag is undoubtedly good news for consumers, resellers such as SingTel and M1 will have to wait longer to recoup their iPhone subsidies.
‘Instead of an estimated six to nine months break-even time for the iPhone deal with customers, it may take up to one-year for operators to reach the break-even point if prices come down,’ Mr Mittal said.
M1 – CIMB
Best exposure to broadband segment
• Maintaining earnings forecasts, target price and NEUTRAL. M1 remains our top pick in the telco sector where we are maintaining our NEUTRAL position. Our DCFbased target price of S$1.71 (WACC: 10.5%, LT growth: 1%) is unchanged. While there is a lack of re-rating catalysts, we like M1 for its attractive yields of 8%, the best exposure to wireless broadband and the biggest upside from the upcoming NGNBN.
• M1 offers the best exposure to the wireless broadband growth, in our opinion, given its more concentrated cellular exposure. Its mobile data revenue had grown to 10.9% of service revenue in 2Q09 from 9.1% in 1Q08 on the back of a rapid increase in subscriber usage. About 15% of M1’s postpaid subscribers used its wireless broadband services in 2Q09, up from 9% in 1Q08. The growth should continue and the industry could see 1m wireless broadband subscribers in three years’ time, up from the current estimate of 400K-500K.
• NGNBN another avenue of growth. We reiterate that M1 offers the greatest upside for NGNBN as it has no legacy business to cannibalise and NGNBN would give M1 a chance to address its single-product disadvantage. OpenNet’s rollout is progressing according to schedule with a target of 5% coverage by end-Sep 09, 15% by Dec 09 and 60% by end-2010.
• No capital management initiatives this year. Beyond the usual payout, M1 will not be returning excess cash to shareholders this year due to still-fragile economies and tight credit markets. However, it is not opposed to capital-management initiatives in FY10.
TELCOs – OCBC
Positive 2QCY09 Scorecard; Maintain Overweight
2QCY09 results resilient as expected. All the three telcos – MobileOne (M1), SingTel and StarHub – reported a pretty resilient set of results recently. Both M1 and SingTel earnings were slightly ahead of our forecast; StarHub’s earnings were in-line. Overall, their earnings demonstrated the resilience of the telcos.
Review of operations. On the mobile front, we note that consumer spending (ARPU) has rebounded despite the economic downturn – partly aided by the growth in mobile data usage. Acquisition costs have also started to trend up again for both M1 and StarHub; M1 has shown the sharpest increase but it has managed to bring its churn rate down. On the broadband front, new additions have stagnated and ARPUs for SingTel and StarHub have declined further. On the PayTV front, StarHub has managed to maintain both its subscriber base and ARPU; SingTel has recently announced that its mio TV subscription have exceeded 100,000.
Stable outlook for rest of 2009. Going forward, all the three telcos expect their Singapore operations to remain stable or show slight growth, with EBITDA margins remaining relatively steady; this as they strive to reduce costs to keep pace with the expected softening in operating revenue. But due to their strong cashflow-generative businesses, the telcos have largely kept their dividend payout guidance; M1 to pay at least 80% of underlying net profit; SingTel to pay 45-60% of underlying earnings; StarHub to pay S$0.18/share, or S$0.045/share per quarter.
BPL uncertainty looms but we are not perturbed. The broadcast rights of the 2010-2012 BPL (Barclays Premier League) would be up for grabs and StarHub’s PayTV business would be affected if it fails to secure the rights. However, we are not perturbed. Yes, SingTel may be looking to add more exclusive content but based on its current mio TV subscriber base, it may not be able to fully maximize the investment. But come 2012, SingTel would be in a better position to benefit as the NBN will fully come onstream.
Maintain Overweight. Although there has been a steady switch into highbeta stocks on hopes of a rapid recovery in both the economy and corporate earnings, we are not entirely convinced. And until we see more concrete signs of a rapid recovery, we would still advocate holding on to these defensive counters for their attractive dividend yields and as a means of diversification. Maintain OVERWEIGHT.
M1 – Phillip
Proposed acquisition of Qala
M1 announced that it had entered into a sale and purchase agreement to acquire allthe ordinary shares of Qala Singapore Pte Ltd. Qala is an internet service providerand offers internet services to corporate, enterprise and public sector customers in Singapore. The consideration is S$14.9 million and another S$3.0 million will be paid
if certain financial targets were met by Qala.
Boost for M1 in the internet services market. We like the acquisition as it helps to strengthen M1’s position in the internet services market. M1 is the last player to enter the internet services market and has to catch up with SingTel and StarHub in terms of market share. Through the acquisition, M1 gains access to the customer base and business contacts of Qala. This is likely to boost the revenue of M1 from the internet services segment. In fact, internet services (or broadband) revenue is projected to increase from S$2.8 million in FY2009F to S$16.2 million in FY2010F and S$18.3 million in FY2011F.
Maintain Hold with fair value raised from S$1.67 to S$1.78. We maintain our hold recommendation as M1 remains the smallest telecommunications player in the Singapore market and does not have any overseas operations. However, due to the benefits from the acquisition and the likely increase in revenue, we raise the target price from S$1.67 to S$1.78 based on the free cash flow to firm model.