Category: M1
TELCOs – OCBC
Downgrade to NEUTRAL
- All largely in line
- Outlook still muted
- Downgrade to NEUTRAL
Results were mostly in line
All three telcos reported 1QCY13 results that came in within our expectations. M1’s core earnings met 27% of our full-year forecast; SingTel met 27%; and StarHub met 25%. StarHub declared a quarterly dividend of S$0.05/share as guided, while SingTel declared a final dividend of S$0.10 (bringing its total dividend for FY13 to S$0.168).
Review of Singapore mobile operations
Core post-paid mobile subscribers grew by 1.2% QoQ to 4.3m at end-Mar, led by SingTel (+1.4%), M1 (+1.1%) and StarHub (+0.8%). While monthly ARPUs were fairly stable, the three telcos expect to see some uplifts this year, aided by the new tiered pricing plans with less generous data bundles; they also expect data usage to trend higher as more users migrate to the faster 4G networks.
Outlook still quite muted this year
While the exception of M1, which expects to see a moderate earnings growth this year and pay out at least 80% of earnings as dividends, both SingTel and StarHub are more muted in their outlook. SingTel expects stable group revenue for FY14 while overall EBITDA should show low single-digit growth. It did raise its dividend payout ratio to 60-75% of core earnings. On the other hand, StarHub has pared its revenue guidance down to low single-digit growth from singledigit growth and kept its EBITDA margin at 31%. It also kept its dividend at S$0.20/share, or S$0.05/quarter.
Downgrade to NEUTRAL – yields are not attractive
In the search for yield, telco stocks have done very well, rising some 14-26% YTD. However, we note that the share prices have run up too much, too quickly, and this has driven yields down to below 5%. In addition, a more “risk-on” approach could see investors switching out of defensive plays. As such, we downgrade our rating on the sector to NEUTRAL from Overweight.
TELCOs – OCBC
Downgrade to NEUTRAL
- All largely in line
- Outlook still muted
- Downgrade to NEUTRAL
Results were mostly in line
All three telcos reported 1QCY13 results that came in within our expectations. M1’s core earnings met 27% of our full-year forecast; SingTel met 27%; and StarHub met 25%. StarHub declared a quarterly dividend of S$0.05/share as guided, while SingTel declared a final dividend of S$0.10 (bringing its total dividend for FY13 to S$0.168).
Review of Singapore mobile operations
Core post-paid mobile subscribers grew by 1.2% QoQ to 4.3m at end-Mar, led by SingTel (+1.4%), M1 (+1.1%) and StarHub (+0.8%). While monthly ARPUs were fairly stable, the three telcos expect to see some uplifts this year, aided by the new tiered pricing plans with less generous data bundles; they also expect data usage to trend higher as more users migrate to the faster 4G networks.
Outlook still quite muted this year
While the exception of M1, which expects to see a moderate earnings growth this year and pay out at least 80% of earnings as dividends, both SingTel and StarHub are more muted in their outlook. SingTel expects stable group revenue for FY14 while overall EBITDA should show low single-digit growth. It did raise its dividend payout ratio to 60-75% of core earnings. On the other hand, StarHub has pared its revenue guidance down to low single-digit growth from singledigit growth and kept its EBITDA margin at 31%. It also kept its dividend at S$0.20/share, or S$0.05/quarter.
Downgrade to NEUTRAL – yields are not attractive
In the search for yield, telco stocks have done very well, rising some 14-26% YTD. However, we note that the share prices have run up too much, too quickly, and this has driven yields down to below 5%. In addition, a more “risk-on” approach could see investors switching out of defensive plays. As such, we downgrade our rating on the sector to NEUTRAL from Overweight.
M1 – OSK DMG
A Seasonally Weaker Quarter, Roaming Revenues Stay Under Pressure
There were no surprises in M1’s 1QFY13 results, which reflected typical seasonality and the extended weakness in roaming revenue. Management expects margin upside to be capped as subscriber acquisition cost (SAC) will likely remain high. We maintain our core earnings forecasts, which assume a two-year CAGR of 14.5%. Our FV remains at SGD2.70, based on DCF (10% WACC). Maintain NEUTRAL.
Weaker roaming revenue set to persist. We remain concerned over the decline in M1’s roaming revenue – which makes up 12%-15% of its overall mobile revenue – as it is suffering from a growing number of travelers opting for connectivity via Wi-Fi. To mitigate the pressure on traditional roaming revenues, M1 has signed agreements with operators in over 120 countries to provide unlimited Wi-Fi data roaming services.
9% of subs consuming data in excess of bundle. M1 revealed that 20% of its postpaid subscribers are on tiered data plans, with 9% of these subscribers exceeding their data bundle – average revenue per unit (ARPU) uplift of 8%-10%. This suggests that it is only able to monetize 2% of its postpaid base on its LTE plans. Average data consumption on smartphones has exceeded 2GB/month vs 1.6GB/month a year ago.
Flattish fiber subs addition. Although M1 grew its fiber customers to 60k in 1QFY13, subscriber net additions have been relatively flat, at 8k, in the past two quarters. Its share of the fiber additions have also been on a decline, a reflection of the more aggressive acquisition campaigns and bundling promotions by SingTel and StarHub. Management does not see the absence of premium content as a hindrance in growing its fiber business.
Share price playing catch-up. M1’s share price has risen 11.3% YTD, which could indicate a laggard play following its relative underperformance vis-à-vis its peers in 2012. Management has reaffirmed its previous net profit guidance of ‘moderate growth’ and capex guidance of SGD130m-SGD150m for FY13 (excluding 4G spectrum cost). We make no changes to our core earnings forecasts of SGD161m and SGD192m for FY13 and FY14 respectively. NEUTRAL.
M1 – OSK DMG
A Seasonally Weaker Quarter, Roaming Revenues Stay Under Pressure
There were no surprises in M1’s 1QFY13 results, which reflected typical seasonality and the extended weakness in roaming revenue. Management expects margin upside to be capped as subscriber acquisition cost (SAC) will likely remain high. We maintain our core earnings forecasts, which assume a two-year CAGR of 14.5%. Our FV remains at SGD2.70, based on DCF (10% WACC). Maintain NEUTRAL.
Weaker roaming revenue set to persist. We remain concerned over the decline in M1’s roaming revenue – which makes up 12%-15% of its overall mobile revenue – as it is suffering from a growing number of travelers opting for connectivity via Wi-Fi. To mitigate the pressure on traditional roaming revenues, M1 has signed agreements with operators in over 120 countries to provide unlimited Wi-Fi data roaming services.
9% of subs consuming data in excess of bundle. M1 revealed that 20% of its postpaid subscribers are on tiered data plans, with 9% of these subscribers exceeding their data bundle – average revenue per unit (ARPU) uplift of 8%-10%. This suggests that it is only able to monetize 2% of its postpaid base on its LTE plans. Average data consumption on smartphones has exceeded 2GB/month vs 1.6GB/month a year ago.
Flattish fiber subs addition. Although M1 grew its fiber customers to 60k in 1QFY13, subscriber net additions have been relatively flat, at 8k, in the past two quarters. Its share of the fiber additions have also been on a decline, a reflection of the more aggressive acquisition campaigns and bundling promotions by SingTel and StarHub. Management does not see the absence of premium content as a hindrance in growing its fiber business.
Share price playing catch-up. M1’s share price has risen 11.3% YTD, which could indicate a laggard play following its relative underperformance vis-à-vis its peers in 2012. Management has reaffirmed its previous net profit guidance of ‘moderate growth’ and capex guidance of SGD130m-SGD150m for FY13 (excluding 4G spectrum cost). We make no changes to our core earnings forecasts of SGD161m and SGD192m for FY13 and FY14 respectively. NEUTRAL.
M1 – Phillip
Positive on continued Data monetizing
Company Overview
M1 is the 3rd largest Telecommunications company in Singapore. The introduction of NGNBN in Singapore lowered entry barriers to the Fixed Line business, which would allow M1 to venture into the corporate and retail
broadband market.
- 1.7% y-y increase in Net Income, Service revenue healthy with 4.1% y-y growth
- Positive on 11% of re-contracting customers upgrading to higher tiered postpaid plans
- Maintain Neutral, with new TP of S$2.58.
What is the news?
M1 reported 1.7% y-y increase in Net profits. Similar to the previous quarter, service revenue was positive. Y-y increases in revenue contribution from Mobile telecommunication services and Fixed services were also
registered. International call service revenue was however down on lower roaming and International calling card usage. Expenses remain well managed. Net income was above expectations due to lower cost of services. Management guided for moderate growth in FY2013 net profit after tax.
How do we view this?
We are positive on management’s guidance of further data monetizing. While postpaid customers continue to exceed their data allowances, management also guided that 11% of re-contracting customers have upgraded to higher tiered postpaid plan. We continue to expect further data monetizing, although at a tapered rate due to higher proportion of signups from more cost conscious customers moving forward. Management guides for high capital expenditure requirements in FY2014-FY2015. Coupled with the upcoming spectrum auction, we think that there is limited potential for M1 to increase dividend yield in the near term.
Investment Actions?
We adjust our figures to reflect 1Q13 earnings, and lower cost. We continue to expect M1 to deliver stable net profits moving forward. M1’s dividend yield of 5.0% continues to remain attractive at current prices. However, we expect limited upside capital gains, due to previous share price rally and lower earnings growth. We maintain our “Neutral” rating, with a new TP of S$2.58.