As expected, margins improved from a year ago, offsetting the YoY decline in revenue. EBITDA margin on service revenue rose from 43.6% in 2Q08 to 44.7% in 2Q09. This was driven by more customers taking on mid to high-end mobile plans under the Take 3 program as well as higher mobile data usage on its HSDPA network. QoQ, net profit fell 12% to $37.1m only because there was a $5.5m tax credit in 1Q09. Adjusted for that, net profit rose 1.5% QoQ.
Although subscriber acquisition and retention costs of $301 were higher QoQ, it is still down from $346 a year ago. M1 is guiding for similar levels of spending in future quarters but our forecasts already assume higher customer spending. Further, we do not expect SingTel’s recent iPhone 3GS launch to drive a big jump in defensive industry spending, unlike 1H08, as there are now more smartphone alternatives available.
All the telcos will be racing to make sure they get all the high value subscribers they can before NBN comes online. Unlike StarHub and SingTel, which can bundle fixed broadband and Pay TV, M1 is likely to focus on mobile broadband, a growth area due to the profileration of smartphones and netbooks. This could raise costs but we believe M1 has already factored this into its guidance of earnings stability for 2009.
Management reiterated its outlook of a stable 2009 in terms of earnings, as well as a commitment to paying 80% of earnings in dividends, which will still yield a very attractive 8% at current levels. (Interim dividend was maintained at 6.2 cents.) The NGNBN should benefit M1 more than the other telcos in the long term given its relative lack of bundling capabilities, but growth-oriented investors may prefer SingTel in the short term.
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