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.

Source: PhillipCapital Research - 17 Apr 2013