• Payout of 121% vs. 80% minimum
• Sees moderate NPAT growth
• Raising FV to S$3.30

FY13 results still in-line; declares S$0.07 special dividend

M1 Ltd reported 4Q13 revenue of S$278.6m, down 14.9% YoY, affected by lower handset sales (down 46.3%); but EBITDA slipped by a smaller 2%, with service EBITDA margin holding relatively steady at 38.2% in 4Q13, versus 41.6% a year ago. Net profit climbed 6.9% to S$40.5m, mainly due to lower taxes (down 44.6%). FY13 revenue fell 6.4% to S$1007.9m, and was around 3.8% below our forecast, while net profit climbed 9.4% to S$160.2m, or 3.5% above our forecast. M1 declared a final dividend of S$0.071 per share and a special dividend of S$0.071 as well, bringing the total full year dividend to S$0.21 per share. This translates into a payout ratio of 121% of its earnings, versus its official minimum payout ratio of 80%.

Guiding for moderate earnings growth

Going forward, management believes that it can continue to achieve moderate earnings growth (within the single-digit range), driven by increased mobile data usage as customers upgrade their smartphone plans (already 49% are on tiered pricing, with 16% exceeding their data allocation) and also prepaid customers adopting smartphone plans. While it continues to see growth in fixed services, it notes the ongoing price competition in that segment; but believes it should be “promotional” rather than structural. Nevertheless, it notes that a growing adopting of the mass market plan (200Mbps at S$39/month) could see further erosion in ARPU. It has also guided for slightly higher capex of S$130m

Maintain HOLD with higher S$3.30 fair value

Factoring in the latest developments, we opt to pare our FY14 revenue forecast by 8% but increase our earnings estimate by 2%. Our DCF-based fair value will also improve from S$3.17 to S$3.30 as we roll forward to FY14. As we are unlikely to see a repeat of such a hefty special dividend this year, we maintain our HOLD rating.

Source: OCBC Research - 21 Jan 2014