• FY15 earnings 1% below forecast
• Sees stable earnings in 2016
• Likely to keep 80% payout again

FY15 results mostly in line; dividend disappoints

M1 reported its 4Q14 results last night, with revenue slipping 11% YoY to S$307.9m, mainly due to lower handset sales versus a year ago (- 27%); but offset by the increase in fixed services (+29%) albeit on a lower base. While EBITDA managed to inch up 2.1% to S$88.2m, net profit eased 2.3% to S$43.5m.

For the full year, revenue climbed 8% to S$1157.2m, or about 9% above our forecast (mainly due to higher handset sales), while net profit edged up 1.5% to S$178.5m (just 1% below our estimate), and was in line with its tightened guidance of “low single-digit” growth.

M1 declared a final dividend of 8.3 S cents/share versus 11.9 S cents a year ago, bringing its total dividend to just 15.3 S cents (versus 18.9 s cents a year ago). While the total dividend payout ratio of 80.2% was in line with its guidance of at least 80%, we suspect the market may be disappointed, given that Bloomberg consensus was going for a total dividend of 18.1 S cents.

Guides for “stable” performance in 2016

Going forward, M1 believes that it can achieve a “stable” performance in terms of earnings growth in 2016, driven by mobile data and fixed services. It will also continue to invest in its mobile and fixed networks, including complementary services (expects to spend around 2% of total revenue to invest in these services to gain insight and access to new technology).

In total, it expects to spend around S$140m as capex; but not including the S$64m spectrum payment due in Sep 2016 and any additional spectrum in the upcoming auction. M1 has maintained its “at least 80% payout ratio”; but with the additional payments and more muted economic outlook, we expect the payout to be pretty similar to FY15.

Maintain BUY with a lower S$2.95 fair value

We have fine-tuned our FY16 estimates and introduced our FY17 numbers, with earnings continuing to grow at low single-digit levels. But due to the higher-than-expected capex guidance (likely for FY17 as well), our DCF-based fair value drops from S$3.66 to S$2.95. Maintain BUY.

Source: OCBC Research - 19 Jan 2016