Earnings and fair value revised up

• Results were marginally better than expected, despite the headline fall in topline and bottomline numbers for 2Q09 on a YoY basis. 1Q09 marked a low point, with encouraging signs of improving quarters. We are revising EPS up by 3% for FY09 and FY10. Our fair value is also revised upwards by 12% to S$2.03/share.

• Total revenue fell 7% YoY to S$191mil in 2Q09, but this was a 2% pick up from its low point in 1Q09. Its mobile subscriber base turned around from a contraction in 1Q09 to register net adds of 9,000/month in 2Q09.

• However, this came at the expense of higher subscriber acquisition cost (SAC) and retention cost. SAC picked up from S$134/subscriber in 1Q to S$151/subscriber, while retention cost rose from S$116/subscriber to S$150/subscriber. Total subscribers grew 4% YoY to 1.7 million with prepaid mix improving to 46.9%.

• Postpaid ARPU picked up from its low point in 1Q09 to S$60.70/subscriber in 2Q09, while prepaid continued its decline to S$15.50/subscriber. With the launch of several higher value data plans, the fall in data plan ARPU was stemmed in 2Q09, showing a slight improvement at S$22.80/subscriber.

• Contribution from non-voice services was maintained at 25.1% of service revenues, but it would be more important to note that mobile data contribution continued to rise to 10.9%.

• Going forward, M1 has a few initiatives up its sleeve, which targets the high value segment. Its first such initiative was launched in 1Q09. Take 3 is gaining traction with about 20% of new subscribers taking up this plan. Take 3 offers a selection of data-centric handsets bundled with higher value plans, without requiring customers to purchase the handsets.

• On the back of better economic outlook with the recent spate of GDP upgrades, we have also
upgraded our topline inputs with subscriber growth of 4% to 6% till FY11. With M1’s tight cost management, we expect EBITDA margins to maintain at a high 45%.

• M1’s rollout of its backhaul network will be completed at end of 2009 and the cost savings will help to mitigate increased capacity requirements for higher data usage.

• Management is maintaining its policy to payout 80% of net profits in dividends. This puts yield at over 8% per annum. A 6.2 cent Singapore DPS was declared for 1H 2009.

• We maintain a BUY rating on M1, which offers a 20% upside to its fair value of S$2.03/share. M1 is gearing up to participate as a Retail Service Provider in Singapore’s Next Generation National Broadband Network project, which is scheduled to come onstream in April 2010. This opens up a new revenue stream as well as potential for cross service bundling opportunities.

New M1 chief sees an old pal at StarHub

A known competitor, says Kooi, as she reports 9.7% fall in M1 net profit for Q2

INSTEAD of hurting MobileOne (M1), having its former chief head rival StarHub could be a boon, says the new chief of Singapore’s smallest operator.

‘We are glad we have a friend in Neil (Montefiore), so we know our competition,’ said M1 CEO Karen Kooi, as she chaired the telco’s second-quarter results tele-conference yesterday for the first time as M1’s new head.

Ms Kooi, formerly M1’s chief financial officer, took over the reins from Mr Montefiore in April, after serving two months as the interim steward. Her former mentor will return to the telco scene as CEO of StarHub next January following the retirement of incumbent chief Terry Clontz.

For the three months ended June 30, M1’s net profit slipped 9.7 per cent to $37.1 million from $41.1 million a year earlier, due to a revenue decline across all major businesses.

Q2 operating revenue fell 7.2 per cent to $190.5 million, from $205.3 million in 2008. Earnings per share came in at 4.1 cents, down from 4.6 cents last year.

M1’s post-paid mobile sales continued to head south in Q2, falling 8.5 per cent to $124 million amid competitive pressure from rivals Singapore Telecom and StarHub, as well as its own bundling discounts. The operator’s pre-paid revenue also slid in Q2 – by 2.2 per cent to $17.5 million.

With customers reining in overseas calls amid the economic crunch, revenue from M1’s international call services fell 13.7 per cent in Q2 to $32.8 million.

While business has declined, a silver lining is that M1’s operating costs have also gone down.

Customer acquisition and retention costs fell 15.6 per cent and 10.2 per cent to $151 and $150 respectively in Q2. In the same period last year, a fierce marketing war prior to the launch of full mobile number portability sent marketing and promotional spending to dizzy heights for all three local operators.

M1’s staff costs fell 18.9 per cent in Q2 to $18 million as a result of lower bonus provision and a cut in headcount.

M1 also staunched bleeding on the subscriber front during the quarter. It gained 50,000 subscribers, lifting its customer tally to 1.67 million. Its churn rate (the percentage of customers leaving) improved marginally to 1.5 per cent, from 1.6 per cent in Q1.

M1, which is Singapore’s smallest telco, has announced an interim dividend of 6.2 cents, unchanged from last year. For first-half 2009, net income fell 0.3 per cent to $78.9 million, while revenue slid 7.9 per cent to $376.9 million.

Ms Kooi said: ‘Operating conditions for the rest of the year are likely to remain challenging. Economic recovery is still uncertain and the flu pandemic may affect customer spending.’

However, M1 still expects to retain its policy of paying 80 per cent of net profit as dividends this year. Based on its first-half performance, full-year net profit ‘is likely to be comparable to 2008’, Ms Kooi said.

M1 shares rose one cent to close at $1.61 yesterday before its Q2 results were released. Rivals StarHub and SingTel will report their earnings on Aug 5 and Aug 13 respectively.