MobileOne Ltd: 1Q09 results within expectation

1Q09 results mostly within expectation. MobileOne (M1) reported its 1Q09 results last evening, with revenue down 8.6% YoY and 4.3% QoQ at S$186.4m, meeting 24% of our FY09 forecast. Management noted that this decline was due to a combination of the economic slowdown and higher competition. But due to an improvement in operating expenses (mainly due to lower staff costs), profit before tax declined by a smaller 5.7% YoY and 2.2% QoQ to S$44.1m. Meanwhile, net profit jumped 10.4% YoY and 14.5% QoQ to S$41.9m, or around 29.1% of our full-year estimate, aided by a sharp drop in taxes; this was due to one-off accounting adjustment for the reduction in corporate tax rate from 18% to 17%.

Loses post-paid market share as expected. On the business front, M1 felt both the impact of the economic slowdown - leading to lower roaming revenue - as well as stiffer competition. More importantly, M1 saw a near-12k QoQ drop in subscribers in 1Q09, where its post-paid segment lost nearly 4k subscribers, which reduces its market share from 27.2% to 26.8%; this despite a drop in its monthly churn rate from 1.7% in 4Q08 to 1.6%.

We had previously articulated that M1 faces a slight disadvantage due to its lack of bundling abilities as compared to the other telcos, and this could continue to be a concern until it can become an integrated services provider when the NBN (National Broadband Network) comes online from next year onwards. In the meantime, M1 intends to defend and reverse the decline in its post-paid market share. We expect this to result in higher S&P expenses and reverse the decline in average acquisition and retention costs (See Exhibit 1).

Guides for stable operations for FY09. M1 continues to expect 2009 to remain challenging, mainly due to the economic downturn, but it maintains its guidance of stable operations; management later clarified that the stability will be in terms of profitability (See Exhibit 2), citing continued cost discipline and improvements in operating efficiency. We are leaving our FY09 estimates unchanged (already expecting drops of 2.7% and 4.1% in revenue and earnings, respectively). And against the still uncertain economic backdrop, we like M1 for its defensive and strong free cash flow-generating business, and dividend paying ability (80% payout ratio). We also see M1 as one of the biggest beneficiaries of the NBN initiative. As such, we maintain BUY and S$2.12 fair value.

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