What is the news?

M1 reported 11.2% y-y increase in Net profits. Service revenue was higher y-y, driven by higher Postpaid revenue, Fixed service revenue, and Prepaid revenue. International call services was marginally higher, as higher wholesale and bilateral revenue mitigated the decrease in Retail revenue. Operating expenses were higher but manageable, as most of the increase, specifically Staff cost and Advertising expenses can be managed by management in line with the earnings outlook. Net income was above expectations due to strong Service revenue. Management maintained moderate growth guidance for FY2013 NPAT. Marginally higher Interim dividend of S$0.068 was declared.

How do we view this?

We continue to remain positive on M1 due to 1) Attractive dividend yield of 4.7%. 2) Continued data monetizing, driving higher Postpaid and Prepaid revenue. 15% (1Q13: 9%) of 4G customers are also exceeding data allowances. 11% (1Q13: 11%) of re-contracting customers also upgraded to mid-tier plans. 3) Rational competition in Singapore, allowing rational pricing of plans, and purchasing of spectrum at reserve prices. 4) Higher revenue for Fixed services (Fibre broadband) from continued net additions of subscribers. 5) Operating expenses remain manageable.

Investment Actions?

We adjust our figures to reflect 2Q13 earnings, including the strong Service revenue, and higher expenses. While the focus may shift from yield to growth stocks, we continue to find M1’s stable y-y single-digit growth attractive. We maintain “Accumulate” rating, with unchanged TP of S$3.55.

Source: PhillipCapital Research - 17 Jul 2013