Towards Financial Freedom
M1 - Closing In On Content Carriage
M1's 1QFY14 results met expectations. Despite the extended prepaid revenue weakness, management said it has seen some stabilisation in roaming revenue and expects the impact from the recent clampdown on prepaid SIMs to be mitigated by higher top-ups and usage. The telco is also closing in on the conditions for content carriage. We keep our BUY rating and SGD3.65 TP (8% WACC) for M1 - our Top Pick for Singapore telco exposure.
- In line. M1's 1QFY14 core earnings of SGD42.8m (+3.9% y-o-y/+5.7% q-o-q) met expectations, at 25% of our in line with consensus estimate.The key takeaways from its results call were: i) FY13 capex will remain sticky due to forward investments in LTE, and ii) the desire to maintain a good level of handset subsidy to protect its market share. The telco's prepaid revenue extended its decline (-7.3% q-o-q/+5.6% y-o-y) due to expired credits and certain seasonal promotions. W e gather that the pressure on roaming revenue has eased with the lower inter-operator interconnect rates offsetting losses on inbound roaming revenue.
- Tiered data adoption hits 54% in 1Q14 from 49% in 4Q13. Some 16% of tiered-data customers have exceeded their data bundles vs 9% a year ago, which contributed to the 2% y-o-y increase in postpaid ARPU. We expect M1 to better monetise data going forward with the earlier removal of the discount on excess data usage. The number of tiered-data users is projected to surpass 65% by end-2014 and 75% by end-2015.
- SIM card ruling to have slightly negative to neutral impact. M1 said the majority of its prepaid customers have less than three SIM cards. It sees little downside from the Government's recent move to limit the number of SIMs a new prepaid subscriber can own, as users are likely to top up more and still remain active on their previously-acquired SIMs. Prepaid revenue makes up about 13% of M1's mobile revenue.
- Maintain BUY, SGD3.65 TP. We make no changes to our forecasts and TP on the back of management's reaffirmed guidance. M1 remains our top Singapore telco pick as it has lower competitive and execution risks and is making good strides in monetising data.
Other Key Highlights
Closing in on content carriage conditions. M1 said it is on track to meet the conditions for content carriage but refrained from disclosing the number of Internet protocol television (IPTV) subscribers on its network. It had previously targeted 10,000 subscribers by mid-2014, a key condition that needs to be fulfilled to qualify for cross carriage. We are positive on the development as it will level the playing field for content and allow M1 to compete with its rivals with a stronger bundled offering. According to media sources, two-thirds of M1's IPTVsubscribers do not have pay-TV subscriptions on either SingTel (ST SP, NEUTRAL, TP: SGD3.55) or StarHub (STH SP, NEUTRAL, TP: SGD4.60). VoLTE calling soon. As with its rivals, M1 is set to introduce voice-over-LTE (VoLTE) in the coming months. Management expects a "significant improvement" in subscriber experience on VoLTE, as voice calls will be connected in under two seconds compared with 5-10 seconds experienced on 3G currently. The telco does not expect the service to cannibalise its existing voice revenue. We note that the commercialisation of VoLTE in Singapore will coincide with the launch of a voice service by Whatsapp. Capex. M1 has maintained its SGD130m capex guidance, citing the need for progressive LTE upgrades, the extension of a building, as well as investments in a new customer care and billing system. The amount excludes the SGD40m payment at year-end for the 2.5GHz spectrum awarded in FY13.
Closing in on content carriage conditions. M1 said it is on track to meet the conditions for content carriage but refrained from disclosing the number of Internet protocol television (IPTV) subscribers on its network. It had previously targeted 10,000 subscribers by mid-2014, a key condition that needs to be fulfilled to qualify for cross carriage. We are positive on the development as it will level the playing field for content and allow M1 to compete with its rivals with a stronger bundled offering. According to media sources, two-thirds of M1's IPTVsubscribers do not have pay-TV subscriptions on either SingTel (ST SP, NEUTRAL, TP: SGD3.55) or StarHub (STH SP, NEUTRAL, TP: SGD4.60). VoLTE calling soon. As with its rivals, M1 is set to introduce voice-over-LTE (VoLTE) in the coming months. Management expects a "significant improvement" in subscriber experience on VoLTE, as voice calls will be connected in under two seconds compared with 5-10 seconds experienced on 3G currently. The telco does not expect the service to cannibalise its existing voice revenue. We note that the commercialisation of VoLTE in Singapore will coincide with the launch of a voice service by Whatsapp. Capex. M1 has maintained its SGD130m capex guidance, citing the need for progressive LTE upgrades, the extension of a building, as well as investments in a new customer care and billing system. The amount excludes the SGD40m payment at year-end for the 2.5GHz spectrum awarded in FY13.
Financial Exhibits
SWOT Analysis
Company Profile
M1 is the smallest mobile operator in Singapore and an associate company of Malaysian listed Axiata Group.
M1 is the smallest mobile operator in Singapore and an associate company of Malaysian listed Axiata Group.
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Source: OSK-DMG
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