Category: M1
M1 – MayBank Kim Eng
Maximum Warp, Mr Data. Up to BUY
Upgrade to BUY. We recommend a switch to M1 from SingTel and StarHub. Dividend yield of 5% is decent but that is not the main reason to buy the stock. Instead, the relative underperformance of the stock this year vs. peers provides a chance to get in early on potential earnings upside from the adoption of 4G, which we believe will happen faster and sooner than expected in 2013. Already, the early numbers in the 1Q13 results are encouraging. We upgrade M1 to BUY with a DCF-derived target price of SGD3.55, the top end of consensus.
Tiered plan price hike to kick in this year. The SGD3/mth price hike since Sep 2012 when M1 switched from unlimited to tiered plans should have benefit postpaid ARPUs in FY13. M1 now charges SGD39/mth for 2GB of data, up from SGD36/mth for its previous 12GB plan. Previously, it had been the cheapest; now it is on par, befitting its superior 4G coverage. The number of postpaid subscribers that exceeded their data bundles has also doubled QoQ, which is a strong sign of a positive data monetisation trend.
Monetisation should kick in sooner than later. We believe M1 will benefit faster and sooner than expected from the higher data traffic and ARPU uplift that will come from (1) 4G adoption and (2) richer mobile content. In our view, 4G adoption will take place faster than 3G for the obvious reason that nobody can do without their smart devices anymore. Compared to 2009 when 3G first came into the picture, smartphones are now universally available (even 4G) and mobile content is a lot more richer and compelling.
M1 data biz already doing better than peers. M1’s mobile revenue growth has picked up steadily in 2012 on the back of its outperforming non-voice revenue, bucking the downward or flat trend of the other two operators. Given that this has been done without any significant increase in overall market share or ARPU, we believe that this could be due to M1 gaining market share in the 4G base, especially since the steepest jump in mobile revenue occurred in 4Q12, the quarter after it introduced 4G plans.
In-line with expectations. 1Q13 results (NPAT +1.8%/+8.8% YoY/QoQ to SGD41m) showed great promise for 2013 to be a good year. Service revenue rose 4% YoY, the fastest growth since 2010, on the back of good growth in both mobile and fibre businesses. The number of 4G customers on tiered plans jumped from 43k in 4Q12, its launch quarter, to 223k in 1Q13, just about 1% of its total postpaid subscribers but we expect rapid growth ahead in 2013 as M1 has the advantages of full island-wide coverage and a superior network.
TELCOs – CIMB
Singapore visit takeaways
From our recent visit to the Singapore telcos, we gather that StarHub is currently in talks with FA Premier League (FAPL) but we believe that the rights to the Barclays Premier League (BPL) matches are less attractive given the limited time before the season starts.
We also note that competition in fibre broadband has intensified. We maintain Underweight on the sector as de-rating catalysts are expected from SingTel given regulatory and competitive risks. Our top pick is StarHub.
What Happened
We recently met up with M1 and StarHub. Key takeaways are:
StarHub: It has begun talks with the FAPL for the rights to broadcast the Barclays Premier League (BPL). No decision has been made at this juncture. It also does not plan to hire a new COO as its current CEO will be able to take on both the roles. Competition in fibre broadband is increasing, mainly sparked by smaller players like MyRepublic and ViewQuest. StarHub also noted that the average consumption of mobile data by its subscribers has increased from below 1GB/month to 1-2GB/month.
M1: Its fixed broadband segment is now EBITDA-positive but it guided that it will be lower than the overall group’s margin going forward. It expects mobile ARPUs to rise as customers recontract into tiered data plans. M1 expects its capex to peak in 2013 before declining in 2014, albeit still higher than in 2012.
What We Think
StarHub: We think that it is now less compelling for StarHub to acquire the rights to the BPL given that there is limited time left to garner sponsors and advertisers. On top of that, we believe that SingTel has had a head start in locking in most of the BPL fans as subscribers under mioTV.
M1: We expect mobile ARPUs to rise as data usage increases. SingTel has also said it plans double its charge to S$10.70/GB for users exceeding their data quota which will help SingTel to further monetise data. We also expect the overall subsidy for handsets to fall yoy as there are more mid-end 4G devices available in the market.
What You Should Do
We reiterate our Underweight call on the sector given the lack of re-rating catalysts and heightened regulatory and competitive risks.
TELCOs – OCBC
EXPECTING HIGHER CAPEX IN 2013
- 1 near-miss, 2 hits
- Higher capex guidance
- Yield story likely unchanged
M1 below, rest mostly inline
Out of the three telcos, M1’s 4Q12 results were slightly below our forecast while the other two were mostly in line. Nevertheless, we note that M1 not only managed to post a recovery in its EBITDA margin, but also was the highest among the three. As M1 had earlier guided, the recovery was due to the upfront expensing of its smartphone subsidy. M1 also surprised with a special dividend of S$0.017/share on top of its final dividend of S$0.063. StarHub declared a quarterly dividend of S$0.05 as guided.
Review of Singapore mobile operations
Core post-paid mobile subscribers grew by another healthy 2.0% QoQ to 4.3m in Dec quarter, led by SingTel with 2.5%, StarHub 1.7% and M1 1.6%. Monthly ARPUs were also quite stable; and all three telcos expect to see uplifts this year as more users switch over to the new tiered pricing plans with less generous data bundles; this aided by the introduction of more LTE-enabled smartphones.
Most expecting higher capex this year
For 2013, M1 expects to see a moderate earnings growth as it continues to benefit from the upfront expensing of smartphone subsidies; also expects to maintain a dividend payout of at least 80% of underlying profit. For StarHub, it expects single digit revenue growth and an EBITDA margin of 31%; no change to its quarterly S$0.05/share dividend guidance. But both telcos have started to guide for higher capex this year, which they continue to roll-out their 4G networks and also to cater for the growing data usage pattern. Lastly, SingTel has kept its previous guidance, but note that its year-end is in Mar.
Maintain OVERWEIGHT
For now, we maintain our OVERWEIGHT on the sector. But as the telcos have already done quite well YTD, further capital appreciation may be limited, although dividend yields are still relatively attractive. M1 remains our top pick.
TELECOM | OVERWEIGHT
19 Feb 2013
Sector Update
Singapore | Telecom Sector Asia Pacific Equity Research
MICA
M1 – Phillip
Positive on 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.
- 0.8% y-y increase in Net Income, Service revenue healthy with 2.9% y-y growth
- Positive on S$5.50 uplift in ARPU from data monetizing among 4G tiered data plan customers
- Higher FY2013 capex guidance of S$130m – S$150m
FY2012 final & special dividend of 8.0 cents proposed
- Maintain Neutral, with unchanged TP of S$2.41.
What is the news?
M1 reported a marginal 0.8% y-y increase in Net profits. Service revenue was positive, with y-y increases in revenue contribution from Mobile telecommunication services and Fixed services. International call services were however down on lower roaming and International calling card revenue. Expenses remain well managed. Net income was below expectations due to under provision of tax in prior year, and lower than expected margins on handsets.
How do we view this?
The biggest positive from this set of results was management’s guidance of an ARPU uplift of S$5.50 from the data monetizing of 4G tiered data plans. We expect to see continued data monetizing, although at a tapered rate due to higher proportion of signups from more cost conscious customers moving forward. Management also guided higher capex in FY2013, at between S$130m and S$150m. This is due to higher expenditure required to meet the high QOS standards set by the government, and the enhancement of the network. M1 also proposed a final and special dividend of 8.0 cents, bringing the total FY2012 dividend to 14.6 cents, which is 0.1 cent higher than FY2011’s total dividend.
Investment Actions?
We adjust our figures to reflect 4Q12 earnings. We continue to expect M1 to deliver stable net profits moving forward. M1’s dividend yield of 5.3% continues to remains attractive at current prices. We maintain our “Neutral” rating, with an unchanged TP of S$2.41.
M1 – OCBC
FY12 RESULTS MOSTLY IN LINE
- Higher-than-expected tax expense
- Guides for moderate earnings growth
- Keeps minimum 80% payout ratio
Special dividend of 1.7 cents
M1 Ltd reported its 4Q12 results last evening. While revenue of S$327.4m (+3.2% YoY, +28.5% QoQ) was 5.0% ahead of our forecast, aided by higher handset sales of the new iPhone 5 and new Samsung Note 2, net profit of S$37.9m (flat YoY, +14.5% QoQ) was 11.7% below our estimate. This was mainly due to higher-than expected tax expense of S$11.8m (+78.8% YoY. +63.9% QoQ) arising from prior years’ under-provision of deferred taxation. For FY12, revenue came in at S$1076.8m, or 1.5% above our number, while net profit of S$146.5m was 3.3% below. M1 declared a final dividend of S$0.063/share and a special dividend of S$0.017/share, bringing the total full-year dividend to S$0.146 (versus S$0.145).
Expects moderate earnings growth in 2013
Going forward, management expects to see moderate earnings growth in 2013, aided by continued strong take-up of 4G services, where it already has 146k 4G subscribers as of end-2012, thanks to its faster 4G roll-out across the island compared to its peers; uplift from its new tiered pricing plans. Management also cites a likely acceleration of fiber adoption as a driver as margin will improve with scale – M1 currently has close to 52k NBN customers as of end 2012; company believes that it can hit optimal efficiency with 100k users. Meanwhile, M1 will spend some S$130-150m capex to expand its mobile coverage and capacity (partly due to new QoS imposed by IDA). It also maintains a minimum 80% dividend payout ratio.
Maintain BUY with S$2.89
We are paring our FY13 earnings forecast by 9% after taking the guidance into consideration. But as we shift our DCF valuations out to 2015, our fair value remains unchanged at S$2.89. Maintain BUY as we still believes M1 has potential gain market share in the NBN segment.