Still calm for now
- 2Q15 in line. 1H15 net profit at 46% of full-year core. EBITDA margins kept at c.41%, despite fall in postpaid revenue.
- No change to EPS, though we caution that 20-30% of mobile revenue could be at risk in 2018, with new entrant.
- Maintain HOLD & DCF TP of SGD3.65, pending further clarity on competitive landscape. 5.7% yields to support stock for now. Prefer StarHub in sector.
What’s New
2Q15 was in line.
- Net profit rose 1% YoY to SGD44.3m while 1H15 net profit of SGD90m (+3.8% YoY) accounted for 46% of our fullyear core forecast. A dividend of 7 SGD cts was also in line.
One thing stood out, though.
- Postpaid mobile revenue was down 0.1% YoY. This contrasted sharply with M1’s previous 5-6% growth and the industry’s 3-4%. M1 attributed this to its unique iPhone accounting treatment which raised amortisation costs for handsets when iPhone sales run high, as they have been in the past two quarters.
- This resulted in a neutral impact on margins, which kept service EBITDA margins at c.41%.
- Management pointed to still positive core revenue growth.
On the fourth entrant
- On the fourth entrant, management highlighted that the 60% discount on spectrum only applies in a one-bidder field.
- If there is more than one, market forces will apply and the cost could be higher.
- Against the larger cost of setting up a network, spectrum is a small-ticket item. It also doubted whether the new entrant would be able to make its model work in Singapore.
- On its MVNO JV with Liberty Wireless, management refused to comment before its market entry. However, it would be rational to expect market prices to fall with the entry of new rivals.
What’s Our View
Maintain HOLD and DCF TP of SGD3.65 (WACC 6.1%, LTG 1%).
- We maintain that M1’s risk will be the highest, with 20-30% of mobile revenue exposed to the new entrant in 2018.
- For now, we believe dividend yields of 5.7% should provide support, pending further clarity on the competitive landscape.
(Gregory Yap)
Source: http://www.maybank-ke.com.sg
