S$3.24; M1 SP
Price Target : 12-Month S$ 3.60
Spot on profit, special dividend surprise!
•FY13 earnings of S$160m (+ 9.4%) was in line; including special DPS of 7.1Scts, final DPS of 14.2Scts beat our 9Scts estimate
•Management guided for single-digit growth in FY14, prompting us to trim FY14F/15F earnings by 2% each
•BUY with DCF-based (WACC 6.5%, terminal growth 0%) TP of S$3.60, implying 11% upside potential and 5% plus yield
Focussed on profitability rather than market share. Due to iPhone 5S and Galaxy Note 3’s launches, M1’s acquisition cost per subscriber rose to S$396 in 4Q13 (21% q-o-q, -5% y-o-y). However, M1 seemed to be less aggressive than its peers and added only 5k postpaid subscribers in 4Q13, leading to a drop in its postpaid market share to 25.0% from 25.5% in 3Q13. M1 was able to bring 49% of its postpaid subscribers on tiered data plans vs 32% in 3Q13. Out of these, about 16% exceeded their data caps. This was also reflected in adjusted postpaid ARPU rising to S$54.4 (+3% y-o-y, +1.9% q-o-q) in 4Q13. On the cost side, M1 saved S$6.5m in leased circuit costs in FY13 by constructing its own backhaul. M1 also disconnected inactive prepaid subscribers to clean up its slate.
Capex to remain elevated in FY14F before declining in FY15F. Management expects FY14F capex of S$130m, similar to FY13 due to: (i) Nationwide rollout of 3G on 900 MHz for better indoor coverage, and (ii) Upgrade of 4G network to LTE-Advanced by end 2014. Beyond FY14F, management expects annual capex-to-revenue ratio of 10% implying capex of S$100-110m. Management guided for S$40m payment for spectrum in FY14F and S$64m in FY16F. Including spectrum payments, M1’s FY14F net debt-to-EBITDA of 0.9x leaves room for capital management from time to time.
M1 offers FY14F yield of 5.2%, with higher growth than its local peers. M1 is trading at 17x FY14F PE vs 18x for StarHub, despite offering superior growth. M1’s across the board price-hike in Sep 2012 and its higher exposure to mobile business (90% vs 60% for StarHub) are the key reasons that M1 should be able to grow faster than StarHub. M1’s FY14F dividend yield of 5.2% is also superior to StarHub’s 4.9%. While SingTel also offers 5.2% yield, weak regional currencies could dampen the earnings. The key risk to our call on M1 would be a bigger-than-expected decline in roaming revenue.
Publish date: 21/01/14