• Adopted new accounting standards
• Mobile revenue support from MVNO
• Unchanged FV of S$1.70

EBITDA Margin Diluted by Strong Growth in Fixed Services

M1 Ltd’s (M1) 1Q18 revenue rose 0.5% YoY to S$254.1m, driven mainly by fixed services (+14%) and mobile post-paid (+4%) revenues but partly offset by weaker handset sales (-6%) and international call services (-14%). Fixed services revenue growth was driven by a 15.3% YoY increase in customer base supported by a 4.5% increase in ARPU, while mobile revenue growth was mainly driven by higher post-paid customer base supported by contribution from MVNO but there was a slight decline in ARPU.

Handset sales fell largely on lower sales volume. 1Q18 operating expenses grew 0.6% YoY to S$209.3m largely driven by higher general and administrative expenses. Consequently, EBITDA fell 2.3% YoY to S$75.4m, while NPAT was flat at S$34.8m on lower provision for taxation.

Note that M1 has adopted new financial reporting framework on 1 Jan 18, which compared to the previous framework, will result in lower service revenue but higher handset sales, and results in higher EBITDA margin on service revenue.

Opportunities in Corporate and Government Segment

Looking ahead, M1 remains open to partner more MVNOs to address niche segments, and we believe its partnership with Circles.Life is gaining good traction. Apart from the retail market, M1 will continue to build its foundation to prepare for future demand-driven 5G network roll-out. In addition, we expect M1 to continue to clinch and deliver fixed services opportunities in the corporate and government segment.

Evident in 1Q18, this segment recorded 19% YoY growth and formed a significant 37% of M1’s total service revenue. Over the medium to longerterm, we do expect M1 to scale up its ICT capabilities and solutions to capture opportunities relating to IoT and Smart Nation initiatives.

In our view, these are necessary steps to reduce its exposure the saturated consumer mobile market in Singapore, which will continue to face pressures from the growing number of competitors.

Retail Mobile Business Remains Under Pressure

All considered, we keep our forecasts and S$1.70 FV unchanged for now. We believe headwinds remain strong given the impending entry of TPG in Singapore.

Source: OCBC Research - 17 Apr 2018