M1 – OCBC
1Q12 RESULTS AS EXPECTED
•1Q earnings within 2% of forecast
•Maintains FY12 guidance
•Eyes data and fixed services growth
1Q12 results mostly in line
M1 Ltd reported its 1Q12 results last evening, with revenue coming in at S$262.5m, up 1.9% YoY, or around 2.1% shy of our forecast. While total revenue was down 17.2% QoQ, it was mainly due to the 44.8% drop in handset sales; mobile services revenue continued to grow, rising 2.6% YoY and 1.4% QoQ. As a result, net earnings – though down 5.3% YoY, rebounded 7.2% QoQ to S$40.3m, or just 1.7% below our estimate.
Modest margin improvement
As expected, the dip in margins in 4Q11 was largely seasonal (also due to higher-than-expected sale of the new iPhone 4S). In 1Q12, service EBITDA margin recovered to 40.1% from 39.2% in 4Q11, although still lower than 3Q11’s 42.1%. Management believes that once it reaches economies of scale for its fixed services (where it added another 7k new fiber broadband customers), margins should continue to improve. Meanwhile, post-paid acquisition eased slightly to S$363/subscriber from S$423 in 4Q11; but cost could remain elevated given that more subscribers are moving towards smartphones (now 60% of subscribers are smartphone users).
Stable financial guidance for 2012
For 2012, M1 has maintained its previous guidance, expecting stable performance at both top and bottom-line; and also keeps capex guidance of S$110-130m. Management also expects the growth momentum for mobile data and fixed services revenue to continue for the rest of 2012; and believes it is well placed to capture this growth with the completion of its LTE network rollout in 2H12 and also the nationwide coverage and increased awareness of NBN. However, M1 did note that the pace of the NBN rollout is still below its expectation.
Maintain BUY with S$2.81 fair value
While M1 did experience a lower free-cashflow (down 48.5% YoY and 47.6% QoQ) of S$24.1m, it was due to payment made in 1Q12 for stocks delivered in 4Q11. As such, it is likely one-off and will not affect our DCF-based fair value of S$2.81. Maintain BUY.
M1 – BT
Higher acquisition costs weigh on M1
Telco's profit down 5.3% in Q1, despite operating revenue rising 1.9%
Higher acquisition costs pushed M1's net profit in the first quarter down by 5.3 per cent over the corresponding period last year, to $40.3 million.
The cost per postpaid customer was $363, compared with $330 a year ago, although this figure tends to vary from quarter to quarter, said the telco.
Higher acquisition costs could be due to a variety of factors, such as the sale of more expensive handsets such as the Apple iPhone, which take longer to break even.
Theoretically, the initial acquisition costs associated with subsidising handsets would eventually translate to longer term revenue from customer contracts.
M1's operating revenue for the first quarter hit $262.5 million, up 1.9 per cent from the same quarter last year.
Last quarter, its net profit was $37.6 million, while revenue went up to $317.1 million.
Its full year 2011 saw net profit rising 4.5 per cent to hit $164.1 million, with revenue up 8.8 per cent to $1.06 billion.
The postpaid segment continued to make a gradual increase as a proportion of M1's overall customer base, at 52 per cent. Postpaid customers contributed 87 per cent of the telco's revenue mix in the first quarter.
Within the postpaid base, smartphones made up 76 per cent of this pool in the fourth quarter, but this figure dropped to 69 per cent in the first quarter.
M1's operating expenses were $211.5 million, and ended the quarter with cash and cash equivalents of $6.9 million.
Karen Kooi, M1 CEO, said during an analyst call that there has been an increase in the proportion of smartphones using mobile data. In the past, this figure was as high as 98 per cent from mobile dongles, but smartphones now use 32 per cent of M1's traffic, she said.
She noted that mobile data and fixed services revenue continued to grow. Mobile data made up 23.1 per cent of service revenue.
Its overall service revenue increased 3.9 per cent to $192 million.
M1 has 202,000 wireless broadband subscribers. Ms Kooi said that there has been a steady migration of customers away from ADSL and cable switching to fibre broadband services.
However, at the close of M1's last financial year, analysts pointed out that delays with the roll-out of the next-generation nationwide broadband network (NBN) are likely to delay M1's hoped-for gratification by providing new services on the fibre optic network.
M1 is also on track to complete its 4G (fourth generation) LTE (long term evolution) network upgrade this year.
The telco has a 25.8 per cent share of the mobile market, according to the Infocomm Development Authority (IDA).
SingTel's latest market share figure stands at almost half the market, at 45.8 per cent. StarHub has the remaining customer base in the country.
The counter closed one cent higher at $2.44 yesterday.
M1 – BT
Higher acquisition costs weigh on M1
Telco's profit down 5.3% in Q1, despite operating revenue rising 1.9%
Higher acquisition costs pushed M1's net profit in the first quarter down by 5.3 per cent over the corresponding period last year, to $40.3 million.
The cost per postpaid customer was $363, compared with $330 a year ago, although this figure tends to vary from quarter to quarter, said the telco.
Higher acquisition costs could be due to a variety of factors, such as the sale of more expensive handsets such as the Apple iPhone, which take longer to break even.
Theoretically, the initial acquisition costs associated with subsidising handsets would eventually translate to longer term revenue from customer contracts.
M1's operating revenue for the first quarter hit $262.5 million, up 1.9 per cent from the same quarter last year.
Last quarter, its net profit was $37.6 million, while revenue went up to $317.1 million.
Its full year 2011 saw net profit rising 4.5 per cent to hit $164.1 million, with revenue up 8.8 per cent to $1.06 billion.
The postpaid segment continued to make a gradual increase as a proportion of M1's overall customer base, at 52 per cent. Postpaid customers contributed 87 per cent of the telco's revenue mix in the first quarter.
Within the postpaid base, smartphones made up 76 per cent of this pool in the fourth quarter, but this figure dropped to 69 per cent in the first quarter.
M1's operating expenses were $211.5 million, and ended the quarter with cash and cash equivalents of $6.9 million.
Karen Kooi, M1 CEO, said during an analyst call that there has been an increase in the proportion of smartphones using mobile data. In the past, this figure was as high as 98 per cent from mobile dongles, but smartphones now use 32 per cent of M1's traffic, she said.
She noted that mobile data and fixed services revenue continued to grow. Mobile data made up 23.1 per cent of service revenue.
Its overall service revenue increased 3.9 per cent to $192 million.
M1 has 202,000 wireless broadband subscribers. Ms Kooi said that there has been a steady migration of customers away from ADSL and cable switching to fibre broadband services.
However, at the close of M1's last financial year, analysts pointed out that delays with the roll-out of the next-generation nationwide broadband network (NBN) are likely to delay M1's hoped-for gratification by providing new services on the fibre optic network.
M1 is also on track to complete its 4G (fourth generation) LTE (long term evolution) network upgrade this year.
The telco has a 25.8 per cent share of the mobile market, according to the Infocomm Development Authority (IDA).
SingTel's latest market share figure stands at almost half the market, at 45.8 per cent. StarHub has the remaining customer base in the country.
The counter closed one cent higher at $2.44 yesterday.
SPH – CIMB
Fairly priced
1Q12 media performance was flat, no surprises. Cost pressures appear to be receding with signs of a bottoming for ad demand. But we struggle to find compelling catalysts for outperformance at current levels.
2Q/1H12 profit is slightly below at 22%/47% of our FY12 estimate and consensus on lower investment income. We lower our estimates by 1-3% to factor in the quarter but raise SOP target, incorporating its Sengkang acquisition and higher property values. Maintain Neutral.
Ad demand bottoming
We think ad demand could have bottomed. Ad revenue still declined 2.3% yoy in 2Q12 but the drop had slowed from 1Q12’s -4% as stronger display ads (+3% yoy) partially made up for weaker classified ads (-9%). The former benefitted from property (stronger-than-expected project sales and launches in Feb) and auto ads while classified ads suffered from reduced job ads. Circulation revenue fell for the second consecutive quarter with SPH yet to reap the results of its subscription drives.
Cost pressures receding
Cost pressures receded, expectedly, on softening newsprint prices and lower variable staff bonuses. 2Q12 newsprint costs were up a marginal 4% yoy while staff costs shed 0.3% despite an increased headcount. Newsprint spot prices are softening and savings should flow through as supplies are absorbed. Other opex could remain high on costs from subscription drives.
Not attractive enough
An interim dividend of 7cts has been declared, unchanged from 1H11. The 6% yields are fairly attractive given low interest rates and S$ appreciation. However, we think the yields could have priced in a mature print business and a lack of compelling catalysts. Its exhibition business is doing well with Internet investments turning around though contributions are small. We prefer retail S-REITs like CMT and FCT for their retail exposure and stronger growth potential.
SPH – DMG
No surprises; maintain NEUTRAL
2QFY12 recurring earnings grew 14% YoY, within our expectations. SPH reported 2QFY12 recurring earnings of S$90m (-26% QoQ) which made up 20% of our full year forecast. 2Q has historically been a weaker quarter. Property segment was the main contributor with rental income up 21% YoY on the back of higher contribution from Clementi Mall and higher rental rates from Paragon. Another comforting note was that 1HFY12 “Others” segment PBT losses were narrowed by 64% to S$5.6m. We continue to see a lack of catalysts for share price upside and maintain NEUTRAL with TP of S$3.91. An interim dividend of 7S¢ per share has been declared. SPH’s FY12 dividend yield of 6.2% still remains attractive.
Decline in N&M performance offset by property and others. 1HFY12 N&M PBT was down 6% due to lower ads from the banking and FMCG sectors. This was offset by better performance from the “Others” segment (comprising of internet and exhibitions) whose decline narrowed by 64% to S$5.6m. Property continued to contribute strongly as expected with 1HFY12 PBT growth of 43% to S$48m on the back of higher rental income from Clementi Mall (100% leased) and higher rental rates from Paragon.
Newsprint and staff costs remain stable. 1HFY12 staff costs increased only by a marginal 1% to S$178.3m despite a 4% increase in average headcount (from the acquisition of ACP Magazines) as bonus pools were reduced from the weaker performance in the N&M segment. Newsprint charge out prices remains stable as well with 2QFY12 prices flat QoQ (compared to previous seven quarters of consecutive increases).
SOTP-derived TP of S$3.91. We value the core media segment based on 11x FY12 P/E, Paragon (S$2.4b) with assumption of a 5% revaluation gain, Clementi Mall (S$266m) with assumption of average passing rent of S$15/sqft, cap rate of 5.5%, M1 and Starhub at DMG TP and investments as at Feb 12.