Another decent set of results

Mildly upbeat 2Q08 results. MobileOne (M1) posted another decent quarter of results, with 2Q08 operating revenue up 2.8% YoY (+0.7% QoQ) at S$205.3m, while net profit rose 1.5% YoY (+8.3% QoQ) to S$41.1m. EBITDA also rose 2.0% YoY (+5.8% QoQ) to S$83.5m, although margin slipped slightly from 45.5% in 2Q07 to 43.6% in 2Q08, it was still slightly higher than the 42.2% seen in 1Q08. As expected, the YoY dip in EBITDA margin was due to the run-up to true Mobile Number Portability (MNP). On an interim basis, operating revenue rose 3.3% YoY to S$409.2m, meeting nearly 51.0% of our FY08 estimate. Although 1H08 net profit slipped 12.5% YoY to S$79.1m, meeting 46.6% of our FY08 forecast, we note that the fall was mainly due to a tax credit in 1Q07; excluding the S$13.0m tax effect, the net profit growth was 2.3%.

MNP raises acquisition/retention costs. On the operating front, M1 added some 57k of new subscribers, with some 14k of new post-paid subscribers – double the pace seen in 1Q08, while new pre-paid users increased by 43k. Post-paid Average Revenue per User (ARPU) also recovered from S$61.6 in 1Q08 to S$61.9; pre-paid ARPU eased slightly from S$16.8 to S$16.5. M1 also saw its overall market share eased from 27.4% in 1Q08 to 26.0%, mainly due to the fall in pre-paid market share from 24.7% to 23.9%, as it is less keen on fighting for market share in this highlycompetition segment. As mentioned earlier, in the run-up to the introduction of MNP in mid-June, M1 saw a sharp jump in its acquisition cost, which rose 52.4% QoQ in 2Q08 to S$218/subscriber, while retention cost jumped 22.8% QoQ to S$167/subscriber; both were the highest levels over the last two years. However, management believes it is seeing signs that the competition is easing and believes costs would start to normalise in 2H08.

Stable operations guidance in 2H08. Going forward, management is maintaining its guidance of stable operations for the year. M1 has also declared an interim dividend of S$0.062/share, and will maintain a total cash distribution equivalent to at least 80% of its earnings. Nevertheless, due to the higher operating expenses, we will pare our earnings estimates for FY08 by 4.9% and FY09 by 4.0%. But our DCF-based fair value remains unchanged at S$2.33. We continue to like M1 as a defensive stock, given its stable earnings stream and good dividend payout, hence we retain our BUY rating.

M1 posts 1.2% rise in Q2 profit, adds 57,000 customers

Mobile number portability ‘not as bad as it might have been’, says CEO

MOBILEONE (M1) yesterday reported a slim 1.2 per cent increase in second-quarter net profit to $41.1 million, as it struggled with higher customer costs in a competitive market.

M1, Singapore’s third-ranked telco, is the first of the trio to report results since the introduction of full mobile number portability. StarHub reports on Aug 6 and SingTel on Aug 12.

M1 chief executive Neil Montefiore said portability was a ‘peaceful event’ and not as bad as it might have been. ‘There were nowhere near the problems we saw in markets like Hong Kong,’ he said. M1 is ‘looking at a few thousand customers in July who want to take their numbers with them’.

Earlier this month, the Infocomm Development Authority said about 6,500 mobile subscribers have jumped ship since June 13 when full portability took effect. These ‘switchers’ amount to less than 0.1 per cent of the holders of the country’s six million mobile lines.

The three telcos unleashed fierce marketing tactics ahead of June 13 to hang on to customers. In Q2 ended June 30, M1’s advertising and promotion expenses rose 51.3 per cent quarter on quarter to $5.9 million.

Mr Montefiore said the telco has seen a reduction in acquisition and retention costs in the ‘past week or so’.

M1 has announced an interim dividend of 6.2 cents. In the same period last year, it paid 7.10 cents, consisting of an interim dividend of 2.5 cents plus 4.6 cents via a capital reduction. Q2 earnings per share were 4.6 cents, up 7 per cent.

For the six months ended June, net profit was $79.1 million, down 12.4 per cent from a year earlier, when the result was swelled by a tax adjustment. In Q2, the company added 57,000 customers, giving it a base of 1.6 million. But its market share continued to slip, to 26 per cent from 28.4 per cent a year ago.

Mr Montefiore said the telco is not focused on market share but customer and revenue growth. Q2 operating revenue increased 2.8 per cent to $205.3 million.

All Q2 revenue streams registered growth, except for handset sales which fell 29.8 per cent to $13.9 million due to lower selling prices. International call services was the best performer, up 22.2 per cent to $38 million.

Free cash flow almost doubled to $105.6 million for the first half, mainly due to higher tax a year ago.

On prospects for the rest of the year, M1 said it expects competitive activity to settle down in a quarter or two. It also expects operations to remain stable for the year.

M1 shares closed two cents lower yesterday at $1.92.

Another tough quarter ahead

Comments

Net- profit of S$41.1m was up 1.2% y-o-y mainly due to one time write back of S$6m provisions for leased circuit costs otherwise earnings would have declined y-o-y. Revenue at S$205.3m was up 3.8% mainly due to strong 22% growth in revenue from international call services. EBITDA margin at 43.6% were lower than 45.5% last year but inline with our expectations. The company declared 6.2 cents in dividends as expected.

Slight loss of market share while ARPU held up pretty well. Although M1 added 43K and 14K subscribers across pre-paid and post-paid segments respectively, market share was lower at 23.9% (24.7% in 1Q08) and 28.0% (Vs 28.1%) respectively. Post-paid ARPU was fairly stable while pre-paid ARPU was down at S$16.5 (S$17.5 in 1Q08) due to stiff price competition.

Recommendation

We think MNP pain would be felt for one more quarter. M1 would have reported declining earnings for 2Q08 Y-o-Y if not for S$6m write back. While MNP kick started on 13 June 08, M1’s monthly churn rate has gone up to 1.5% from 1.3% in 1Q08. Subscriber acquisition and retention costs have also gone up subsequently. We expect the full impact of MNP to be visible in 3Q08 numbers. We maintain HOLD with DCF based target price of S$2.20. Regular dividend yield of over 7.3% can be further complemented by special dividends or capital reduction as M1’s net debt-to-EBITDA at 0.6x remains far below its target of 1.5x

SINGAPORE – MobileOne (M1) said on Thursday that its net profit for Q208 increased 1.2 per cent to $41.1 million (US$30.2 million) as Singapore’s third ranked telco struggled with higher customer costs in a competitive market.