• 1Q NPAT met 25% of FY15 forecast
• No change to FY15 guidance
• Valuations at high-end of 5-year range

Decent start to the year

M1 Ltd reported its 1Q15 results last evening, with revenue jumping 22.7% YoY to S$294.8m, again driven by higher handset sales, where demand for the new Apple iPhone 6 and 6+ remained strong. EBITDA was stable at S$83.3m (+2.2%), with service EBITDA margin remaining firm at 40.8% versus 40.0% in 1Q14. Also aided by lower taxes (down 9.4%), net profit grew 6.7% to S$45.7m. On the whole, we deem the results to be in line with our expectations, as revenue met 28% of our full-year forecast, while earnings met 25%.

Reiterates moderate earnings growth outlook

Going forward, M1 has reiterated its previous guidance of achieving “moderate” earnings growth this year, which we understand to be within the single-digit range, driven by continued growth in data usage. M1 noted that post-paid users on average used about 3.2GB of data per month, with about 20% of its tiered-pricing customers exceeding their data bundles (typically around 3GB). Meanwhile, M1 is also positive on its fixed services segment, where it expects to grow share in the government and corporate sectors, citing the launch of new services like ultra-high speed broadband plans, data centre and cloud-based applications. However, it did note that the ARPUs for its residential broadband business could slip in the coming quarters, as customers gyrate back towards the mass-market plans amidst stiff competition in the market.

Maintain HOLD with unchanged S$3.66 FV

As the numbers came in largely within expectations, we op to keep our FY15 estimates unchanged for now. As such, our DCF-based fair value remains at S$3.66, coupled with an expected dividend of S$0.185, we maintain HOLD on the stock. Separately, we note that the stock price has done reasonable well – up 8.9% YTD versus +3.5% for the STI. It is also currently trading at 11.1x EV/EBITDA, versus its 5-year average of 8.9x, which is very close to the 11.4x high. As such, investors may consider taking some profit should the share price fails to clear S$4.00 in the near future.

Source: OCBC Research - 14 Apr 2015