Category: M1
TELCOs – BT
SingTel, M1 square off with new mobile plans
TO SUSTAIN customers’ insatiable appetite for mobile phones during the downturn, Singapore Telecom is dishing out three new subscription packages with all-you-can-eat data buffets. And rival MobileOne is giving free phones and will let you swap your handset for a new model after just nine months.
SingTel’s new plans – 3G Flexi Lite, 3G Flexi and 3G Flexi Plus – aim to get handset users to gobble up more data on the go through Web surfing and e-mailing.
By paying $39-$95 a month you can surf to your heart’s content as the packages come with an unlimited six-month data bundle on top of the usual outgoing voice minutes and SMS combo.
However, the data buffet is only available if you take up the new HTC Dream – the handset dubbed the Google phone because it is powered by the search giant’s mobile operating system.
You will have to fork out $38-$238 for a Dream if you opt for one of the new 3G Flexi plans – provided you trade in a phone with a value of $200.
As previously reported by BT, SingTel has signed an exclusive deal with Taiwanese phonemaker HTC to retail the Dream, much like its agreement with Apple for the iPhone.
But SingTel’s rivals aim to make sure it does not have the edge for too long. StarHub and M1 are already in talks with HTC to bring in newer versions of the Google device.
The data bundle offered with the Dream is more generous than that offered with SingTel’s iPhone when it was launched last August. At that time the company only threw in a time-limited 1GB (gigabyte) mobile data bundle with the touch-screen handset, which is said to be its best-selling phone ever.
Not to be outdone, rival M1 took the wraps off a new mobile plan yesterday that allows you to exchange your phone much earlier than usual.
Usually you are locked into a 24-month contract and can only upgrade your phone or get a new one free at the tail end of the contract.
Under M1’s new Take3 programme – extended to all its subscription packages that cost more than $19.26 a month – you can choose from a range of free handsets to go with your plan. And instead of having to see out your contract, you can swap your phone from the ninth month on.
The tit-for-tat battle between SingTel and M1 is a further sign of Singapore’s increasingly cutthroat mobile market. Since the start of mobile number portability (MNP) last year, operators have been using exclusive handset deals and creative subscription bundles to entice people to defect, now that they are free to carry over their phone number.
According to the Infocomm Development Authority of Singapore, about 6,000 subscribers a month are making use of MNP to port their mobile numbers between operators.
TELCOs – DMG
4Q08 in a nutshell
Hits & Misses. The Oct-Dec 08 period presented a mixed bag of results, with StarHub outperforming, SingTel coming in line, and M1 disappointing. All three showed improvements in the Singapore business and benefited from a moderating competitive landscape.
Balance sheet strong. Gearing appears high for the industry but should be no concern as it is a result of sound capital management over the past few years. Net debt/EBITDA (0.7-1.2x) and EBITDA/Interest (19-42x) are at healthy levels.
Mobile margins improve. EBITDA margins have improved 2.0 ppt QoQ as the telcos toned down on subsidies and advertising & promotions expenses. Prior to which, the mobile business was on a declining trend, no thanks to the red-hot competition as the telcos fought hard to gain market share with the introduction of Mobile Number Portability (MNP).
ARPU lower for broadband, but higher for Pay TV. SingTel and StarHub have been slashing prices (and upping the goodies) to lock in customers before the roll-out of the NBN, upping the ante for M1. Meanwhile, StarHub’s Pay TV ARPU rose 4% to S$57 per month despite competition from mio TV.
What to look out for in the coming months? The OpCo results will be out by the end of 1Q09, and we expect the contest to be close. The impact of NBN as well as retrenchments should also be felt by telcos this year.
Still stellar yields. Telcos still offer one of the best yields in the market. Among the three, only StarHub has given an explicit guidance on its dividend payout for the current year (S$0.18 per share). Both SingTel and M1 have instead stuck to a range. On average, the industry is yielding 6.9%, attractive compared to the market average of 5.5%. We maintain our OVERWEIGHT call on the sector, with StarHub as our top pick.
M1 – Phillip
FY2008 results
Net profit declined in FY2008. For FY2008, M1 reported operating revenue of S$800.6m (-0.3% yoy), profit before tax of S$185.0m (-4.9% yoy) and net profit of S$150.1m (-12.6% yoy).
There are three main revenue segments: mobile telecommunication services, international call services and handset sales. Mobile telecommunication services registered 0.2% increase in revenue to S$601.4m as the customer base increased by 10,000 and 96,000 from last quarter and last year respectively to 1,631,000. Postpaid revenue fell by 1.6% to S$529.8m while prepaid revenue increased 16.2% to S$71.6m. Moreover, international call services posted 7.9% rise to S$137.1m while handset sales fell by 18.4 percent to S$62.1m.
The introduction of full mobile number portability from 13 June 2008 resulted in increases in both its acquisition and retention costs. This caused the operating expenses to rise by 1.1% to S$608.9m. However, other revenue and finance costs dropped by 65.5% and 20% to S$1.0m and S$7.6m respectively. As a result, profit before tax fell to S$185.0m. Net profit decreased by 12.6% to S$150.1m in FY2008 mainly due to the absence of tax adjustments, which occurred in FY2007.
Profit margin. Net profit margin increased from 17.5% in 3Q FY2008 to 18.8% in 4Q FY2008 mainly due to lower staff costs. Based on a year-on-year comparison, it fell from 21.4% in FY2007 to 18.7% in FY2008 because of higher retention and acquisition costs.
The actual revenue and profit were 4.4% and 9.6 percent below our forecasts respectively. This could be attributed to the introduction of mobile number portability that resulted in higher costs.
Outlook for FY2009. M1 expects 2009 to be a challenging year due to the global financial crisis. It has submitted a bid as the Operating Company to build and operate the active infrastructure of the Next Generation National Broadband Network. The announcement of the winning bid is expected to be in 1Q 2009. Despite the crisis and barring unforeseen circumstances, it expects operations to remain stable. Moreover, its dividend policy for 2009 is to pay 80% of net profit after tax as dividend.
Chief Executive Officer (CEO) stepped down. In January 2009, M1 announced that its CEO, Neil Montefiore, would step down from 1 February 2009. The present Chief Financial Officer (CFO), Karen Kooi Lee Wah, would be the Acting CEO in additional to her duties as CFO while M1 searched for a new CEO. We believe that it would take three to four months before a new CEO could be appointed.
Maintain Hold with fair value cut from S$2.16 to S$1.67. Due to the worse-thanexpected results and the challenging outlook, we have reduced our earnings estimates for 2009 and 2010. Therefore, based on our valuation using the free cash flow to firm model, the target price is cut from S$2.16 to S$1.67. M1 remains a hold due to its limited focus on the domestic market. The dividend yield of M1 is 8.2%.
M1 – OCBC
Stable Operations in 2009
4Q08 results mostly in line. MobileOne (M1) reported its 4Q08 results on Friday, with revenue down 5.9% YoY (down 1.0% QoQ) at S$194.7m, just slightly ahead of our S$190.6m forecast. While net profit fell 3.7% YoY to S$36.6m, it was up 6.1% QoQ and was also ahead of our S$33.6m forecast. One reason for the slightly better-than-expected sequential earnings was the improvement in EBITDA margin on service revenue from 41.6% in 3Q08 to 44.0%, as it had been less aggressive during the holiday period (EBITDA margin was 40.9% in 4Q07). According to management, this was because it had shifted its promotions to the 2nd and 3rd quarter following the launch of true mobile number portability in June 08.
For the full year, revenue was flat at S$800.6m, while net profit fell 12.6% to S$150.1m, both pretty close to our S$796.5m and S$147.1m estimates. However, the street may be slightly disappointed as consensus was looking at a net profit of S$153.1m on S$815.8m revenue. M1 declared a final dividend of S$0.072/share, bringing the total dividend to S$0.134 (versus S$0.108 for FY07), or 80% of its net profit as promised.
Stable operations expected. Although M1 is mindful of the current economic climate and the credit crunch, it believes that its operations should remain stable; service EBITDA margin will remain around 43-44%. It intends to spend around S$100-120m as capex this year. It also aims to maintain its payout ratio of 80%. However, we are a little less sanguine as we expect M1’s churn to remain high, hampered by its lack of bundling abilities. At such, we are sticking to our original forecast of 2.7% drop in revenue and a 4.1% drop in earnings; retention and acquisition costs may remain high as we believe M1 may need to work a little harder to retain customers versus its peers.
Maintain BUY with S$2.12 fair value. Meanwhile, the ongoing search for a new CEO may be another concern but we believe that there should be no change to its near- to medium-term strategy of M1 becoming a multiple-play operator via the NGNBN (Next-Gen National Broadband Network). And against the deepening economic backdrop, we still like M1 for its defensive and strong free cash flow-generating business. As such, we maintain BUY and S$2.12 fair value.
M1 – DBS
Cost savings help earnings
M1’s 4Q08 results were better than we expected, mainly due to lower staff cost. It declared a final 7.2 cents, as expected, and management intends to maintain the 80% payout ratio for FY09F. Management also guided for similar earnings for FY09F, as it remains cautious of the impact of a possible recession on the population of foreign workers in Singapore.
Better bottomline but weaker topline. 4Q08 net profit of S$36.6m (+6% q-o-q, -3% y-o-y) exceeded our S$32.6m forecast, due to S$6m savings in staff cost resulting from lower bonuses. But revenue of S$195m (- 1% q-o-q, -6% y-o-y) was short of our S$202m forecast due to lower handset sales and slightly lower ARPU, which could be attributed to the economic slowdown.
Competition seems to move in the right direction. Average retention and acquisition costs tumbled from 3Q08 levels. Churn rate also fell q-o-q to 1.7% from 1.8%, indicating competition is getting more rational. We expect competition to ease in 2009 as operators get into cost control mode, but FY09F earnings might soften as easing competition may not be sufficient to offset the impact of recession.
Fair value at S$1.57. This is pegged to 10x FY09F PER, based on its historical PE range of 8x-13x. Given its 12% free cash flow yield, dividends should be sustainable at 8.5% yield. FY10F earnings is expected to grow y-o-y due to c.S$20m cost savings from its backhaul network. With 0.7x net debt to EBITDA ratio, the lowest among Singapore telcos, M1 will have ample room for capital management when credit conditions improve. Maintain BUY.