• 2Q net profit 0.7% above forecast
• Eyes moderate earnings growth
• Decent 5.7% yield for FY15

2Q15 results within expectations

M1 reported its 2Q15 results last evening, where revenue jumped 15.5% YoY (-6.1% QoQ) to S$276.8m, or about 0.7% above our forecast. Handset sales remained fairly robust at S$72.7m (versus S$90.4m in 1Q15) as demand for the new Apple iPhone 6 and 6+ likely remained strong. But EBITDA eased 0.4% YoY (-2.3%) to S$55.2m, while net profit rose 0.8% YoY (-3.0% QoQ) to S$44.3m, also 0.7% above our estimate.

For 1H15, revenue rose 19.1% to S$571.7m, forming about 54% of our full-year forecast, while net profit grew 3.8% to S$90.0m, or about 50% of our FY15 estimate. M1 declared an interim dividend of S$0.07/share, unchanged from the year-ago period.

Keeps moderate earnings growth outlook

As expected, M1 has kept 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 highlighted that 72% of its postpaid customers are on tiered plans (versus 68% in 1Q15), while 23% of these subscribers exceeded their data bundles (versus 20% in 1Q15).

M1 also saw a modest improvement in fiber ARPU in 2Q15 to S$46.3/month, driven by corporate customers, but competition for the home segment is likely to remain stiff. The telco expects to spend S$120m as capex this year, unchanged as well from its previous guidance.

Maintain BUY with unchanged S$3.66 fair value

As the numbers were mostly in line with our forecast, we opt to leave our FY15 estimate unchanged for now. We also maintain our BUY rating with an unchanged S$3.66 fair value, supported by an attractive 5.7% yield. While the IDA appears to be keen on introducing a new mobile operator into the market, it is not a given due to the high capital outlay for rolling out its own network coverage.

As such, the recent fall in price due to these concerns may be somewhat premature; although the spectre of rising interest rates is likely to continue to weigh on yield stocks.

Source: OCBC Research - 21 Jul 2015