For the first half, revenue slipped 7.9% to S$376.9m, while net profit eased 0.3% to S$78.9m, meeting 48.4% and 54.9% of our FY09 forecasts respectively. M1 has also declared an interim dividend of S$0.062/share, or 70% of its 1H09 earnings, unchanged from last year.
Regains lost ground. On the business front, M1 managed to regain lost ground following slightly more aggressive promotions in both the pre- and post-paid segments; overall subscribers rose by 50k vs. 12k decline in 1Q09, led by a 43k increase in pre-paid users. But on the post-paid front, we note that its market share continued to slip from 26.8% in 1Q09 to 26.5%, despite adding 7k more subscriptions. While monthly churn rate eased from 1.6% to 1.5%, it came with higher acquisition and retention costs (see Exhibit 2). However, this came as no surprise as we had already highlighted a likely increase in our previous report. As for its IDD business, revenue fell 13.7% YoY to S$32.8m, hit by lower tourist arrivals, but rose 2.5% QoQ, suggesting the worst may be over.
Outlook remains tough. Going forward, M1 continues to expect the operating environment to remain "challenging", mainly due to the ongoing economic slowdown. Nevertheless, it intends to remain disciplined in cost management and improve efficiency; also guides for comparable net profit vs. FY08. M1 has maintained its 80% payout ratio for the full year as well as S$100m capex target. As the economic outlook is still uncertain (may face a long-drawn recovery), we continue to 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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