M1 – OCBC
EXPECTING MORE OF THE SAME IN 2012
•FY11 earnings are in line
•Margin erosion likely seasonal
•Guides for stable FY12
FY11 results mostly in line
M1 Ltd reported FY11 results, which came in mostly in line; revenue grew 8.8% to S$1064.9m, or around 4% ahead of our estimate, boosted by slightly stronger-than-expected handset sales (M1 revealed that it sold a good number of Apple iPhone 4S without contracts). Net earnings came in at around S$164.1m, or just 0.5% shy of our forecast. And as expected, M1 declared a final dividend of S$0.079 per share, bringing the total dividend to S$0.145, or 80% of core earnings as guided.
Margin erosion likely seasonal
While its service EBITDA margin was steady at 39.2% in 4Q11 (41.4% in 4Q10, 42.1% in 3Q11), we note that its overall EBITDA margin slipped to 23.3% (29.6% and 32.4% over the same period). M1 explained that it was due to the strong demand for the new iPhone 4S and seasonal promotion for other smartphones. This also caused acquisition cost to shoot up to S$423/post-paid user (S$368 in 4Q10). However, management expects the cost to start easing in the coming quarters. Post-paid (adjusted) ARPU was stable at S$53 in 4Q11 versus S$53.9 in 3Q11. Data ARPU rose slightly to S$23.1 from S$22.2 in 3Q11; and this could improve further as M1 is looking at new strategies to re-price its data plans using LTE.
Stable financial guidance for 2012
For 2012, M1 expects to maintain stable performance at both top and bottom-line, citing the more uncertain global economic outlook and its potential impact on roaming revenue. It has also kept its 80% dividend payout ratio and expects to spend some S$110-130m in capex. To account for its outlook and results, we are bumping up our FY12 revenue forecast by 4% but are lowering our earnings forecast by 4%. But due to likely lower working capital requirements and capex expenditure in the near future, our DCF-based fair value inches up from S$2.79 to S$2.81. We continue to like M1 for its defensive earnings and greater NBN potential – maintain BUY.
M1 – BT
M1’s Q4 profit inches up 0.4%
Operating expenses eat into strong sales; final dividend of 7.9 cents
M1’s net profit edged up 0.4 per cent to $37.6 million for its fourth quarter ended Dec 31, 2011, while revenue surged 21.3 per cent to $317.1 million.
For the full financial year, net profit rose 4.5 per cent to $164.1 million. Revenue for the same period increased 8.8 per cent to $1.06 billion from $979.2 million.
M1 has proposed a final dividend of 7.9 cents per share. Including the interim dividend, the total dividend was 14.5 cents per share, representing an 80 per cent payout of net profit.
Earnings per share for the quarter and full year were 4.1 cents and 18.1 cents respectively, compared with 4.2 cents and 17.5 cents in the year-earlier period.
Though Q4 revenue was driven up by higher service and handset sales, the bottomline only rose slightly because of higher operating expenses, which increased 26 per cent over the year to $272.7 million.
Q4’s higher expenses were partly due to higher acquisition cost per post-paid customer, which shot up to $423 after hovering below the $300 mark in the two preceding quarters. This was attributed to the high demand for the iPhone 4S that was launched in the quarter.
For the full year, however, customer acquisition cost fell 2.6 per cent to $342.
Smartphone users make up about 67 per cent of M1’s total post-paid customer base.
In 2011, M1 added 45,000 new post-paid mobile subscribers, bringing the total to 1.05 million. Including prepaid customers, M1’s total mobile customer base for the year was 2.02 million, an increase of 104,000 subscribers.
M1, which was the first to introduce specific price segmentation based on usage of 3G mobile data plans last year, will reinforce the same pricing principle with the Long Term Evolution (or 4G) data bundles by repackaging them according to customer usage.
‘We believe it’s fairer to our customers to make them pay for what they use so that the experience of the majority is not impacted by the minority who hog the bandwidth,’ said M1 CEO Karen Kooi.
Last month, SingTel revealed that 11 per cent of dongle and tablet users take up 60 per cent of data traffic, a consumption pattern made possible by generous 3G data caps.
Ms Kooi said the data usage pattern that M1 has seen is ‘similar’ to its competitors’.
’10-15 per cent of our base are hogging the bandwidth. With the revised pricing, we hope to rebalance that,’ she said.
Even as the telco moves to further monetise data, the uncertain economic outlook for the year might have an impact on roaming revenue, especially if travel is curtailed, Ms Kooi said.
‘What we are seeing is the trend of people, instead of roaming with their mobile phone, they … buy a local prepaid card for either voice or data. Sales of our prepaid cards at our airport outlet grew by some 200 per cent over last year. Whether or not this trend is going to continue, we are watching it very closely,’ Ms Kooi said.
The telco said it expects a ‘stable performance’ for 2012.
M1 shares closed one cent higher at $2.56 yesterday before its earnings were released.
StarHub – Kim Eng
Hold on for more
Hold on despite possible 4Q miss. StarHub is slated to release its full-year FY11 results on 2 February. We would not be surprised to see a lower-than-forecast net profit, given the stronger-than-expected demand for iPhone 4S. On the bright side, competition is easing and we expect content costs to remain subdued while its low gearing suggests the potential for dividends to be maintained and even enhanced this year when economic headwinds die down. Maintain Buy.
Expect subdued margins. Our full-year revenue forecast of $302.7m suggests a 4Q11 net profit of $79.8m and EBITDA margin on service revenue of 31%. While this is in line with management’s full-year guidance of “about 30%” (9M11 margin was 30.4%), we would not be surprised by a lower-than-forecast EBITDA margin in 4Q11 due to the robust demand for iPhone 4S.
Good and bad of strong iPhone 4S demand. Despite the slight difference between iPhone 4 and iPhone 4S, the demand for the latter has been unusually strong since its launch last October, and is likely to last into 1Q12. While bad from a subsidy perspective, the robust sales were good in that they suggest data usage by iPhone 4S users is twice that of iPhone 4 users and three times more than 3GS users, likely due to Siri. Better data monetisation in future should bring benefits to ARPU.
Competition easing, content costs under control. On the bright side, competition in broadband and Pay TV appear to have been tamed, and content costs should remain subdued, as challenger SingTel is likely to hold back from making aggressive moves now that the cross-carriage law is in effect. For example, it did not push aggressively for the World Cup or Fox International Channels.
Dividend likely maintained, with scope for a raise. StarHub will likely keep its DPS at 20 cents in 2012. It could even pay more, as competition has eased and gearing has fallen. Net debt/EBITDA hit 0.69x in 3Q11, giving it ample headroom to its target of 1.5x. Assuming a range of 1-1.2x, StarHub could pay 6-15 cents more on top of the regular dividend. The last time it did a capital reduction was in 1Q07 (25.6 cents a share) when gearing fell to 0.7x. Reiterate Buy.
SPH – OCBC
RETAIL LANDLORD STRATEGY COMING ALONG NICELY
•Print ads slow down
•Offset by Clementi Mall income
•Support from 6.5% dividend yield
1QFY12 PATMI of S$97.5m or 6 S-cents per share.
Singapore Press Holdings (SPH) reported 1Q12 PATMI of S$97.5m or 6 S-cents per share, down 4.7% YoY. This was mainly due to a poorer performance from the Newspaper and Magazine segment, offset by added contributions from Clementi Mall. 1Q12 PATMI formed 26.3% of our FY12 forecast and is broadly in line with expectations. The topline came in at S$332.4m which is 4.3% higher YoY due to Clementi Mall (rental income of S$9m) and new shows in the exhibitions business, but was partially offset by Newspaper and Magazine revenues falling 1.2% YoY.
Print advertisement performance softer YoY.
As anticipated, we saw 1QFY12 revenues from print advertisement fell 1.2% YoY, driven by declines in both display and classified ads. Display ads demand from the fast moving consumer goods and banking/finance segments fell relative to 1QFY11, while demand increased from the property and fashion segment. There were also pressure from operating costs; newsprint and staff costs increased 4.2% and 1.5%, respectively.
Retail property strategy coming along nicely.
Clementi Mall contributed S$9m to revenues as it ramped up into full operations this quarter, its added contributions buttressing earnings significantly. We like the visibility of recurring income from a suburban retail mall, and believe management’s strategy of building a stable counterweight to the print business is coming along nicely. With ~S$1.2bn of investible funds in its arsenal, we expect SPH to add to its retail landlord portfolio over FY12-13.
Upgrade to BUY.
We also saw a S$12.9m mark-down in available-for-sale assets, made up in part of listed equities in listed telcos and REITs. While more mark-downs could come if equity markets soften, we are not overly concerned given the yield and defensiveness of these holdings. Upgrade to BUY at a fair value estimate of S$3.99 and expected dividends of S$0.24 in FY12.
SPH – CIMB
Weaker investment income
1Q12 ad revenue slowed as expected though investment income fell more than anticipated. Its share price could remain supported by decent yields of 6% but we see this balanced by receding ad growth and investment income.
1Q12 core profit is in line at 25% of our FY11 estimate and consensus. Stronger property earnings and lower finance costs made up for weaker print and investment income. We keep our EPS estimates and SOP target price. Maintain Neutral.
Slowdown in ad growth
We expect slower ad revenue in FY12 because of a weakening economy. The slowdown had already been apparent in 1Q12 when newspaper ad revenue fell 4% yoy on weaker display (-3% yoy) and classified (-4% yoy), albeit from a high base in 1Q11. While SPH tried to keep a tight lid on costs (staff and newsprint costs were up 2% and 4% respectively), this was not sufficient. We expect sustained topline weakness and a slight cost reprieve from softening newsprint prices and variable staff costs in the coming quarters.
Investment income succumbed
While risks to its investment portfolio were to be expected given market volatility, SPH surprised with a 90% yoy fall in investment income due to unrealised FX losses on investments. We understand that these were mainly related to forward hedging contracts for both investments and newsprint exposure, stemming from a stronger US$. With continued market volatility and possibly unabated US$ strength, risks remain.
Property only performer
Property was the sole performer as rental revenue grew 27% yoy with the aid of Clementi Mall which had commenced operations in 2QFY11 and higher rental rates at Paragon (+3% yoy). Both are fully leased.