Highlights

• Fullyear earnings up 9.7%y-y at S$175.8m, slightly above estimates.
• Final dividends of 11cts per share, bringing dividend yield to 5%.
• Moderate FY15 NPAT growth guided, with growth optimism on the corporate segment.
• Revise to Accumulate rating with TP at S$4.00, implying FY15F 20x P/E.

What is the news?

M1 reported FY14 results yesterday with earnings growth driven by mobile and fibre services. Higher smartphone data usage drove net postpaid ARPU to S$55.6 for the year, leading to moderate gains in mobile revenue. The proportion of postpaid subscribers on tiered-data plans was up from 61% in 3Q14 to 66%, with 22% (no change QoQ) of tieredplans customers exceeding their data bundle. International call traffic continues to decline due to voice to data substitution, leading to a drop in international call services. Fixed services posted strong gains mainly due to increase in fibre customer base. Take-up of higher speed fibre plans drove higher fibre ARPU to S$46.4 in the 4 th quarter. Strong sales of iPhone 6/6 Plus led to higher handset sales and acquisition cost for postpaid customers. Management expressed optimism on the growth in fixed services from the corporate market going forward, with enhanced cloud solutions and new data centre.

How do we view this?

With over half of postpaid customers on tiered-plans, we expect slower earnings growth momentum ahead. We remain positive on M1 in view of continuing growth in mobile and fixed services, driven by data monetisation, higher fibre customer base and corporate takeup of M1’s cloud solutions and data centre hosting.

Investment Actions

We roll-over our forecasts and introduce our FY16F estimates. We revise our rating from Buy to Accumulate on lower potential upside from current share price, with a target price of S$4.00.

Source: Phillip Securities Research - 20 Jan 2015