MobileOne - Q209 results provide some comfort

Q209 results better than expected; signs of stabilisation MobileOne (M1) results were better than expected due to higher revenues and good cost control (tables 1-2). On the cost side, staff costs and facilities costs remained low, similar to Q109. The turnaround in M1’s revenues in Q209 after a continued decline in the previous quarters (Chart 1) is comforting, in our view. Mobile data’s contribution to service revenue increased to 10.9% compared with 9.3% a year ago. We believe M1 has secured some mid-to-high-end subscribers through its Take3 plan.

Near-term outlook remains unexciting but dividends supportive M1 stated during the conference call that the revenue outlook in H209 remains challenging due to macro uncertainty. M1 will continue to show cost discipline to maintain net profit at the 2008 level. We believe 8% dividend yield provides share price support for M1. M1’s dividends are supported by the solid balance sheet (0.7x net-debt-to-EBITDA) and cash flows (11% eFCF yield). Management stated M1 will keep its dividend payout ratio at 80%.

Expect mid-to-long-term improvements as M1 utilises NBN Despite the unexciting near-term outlook, we believe the medium-term outlook is positive as the next generation national broadband network (NBN) gives M1 a potential new revenue stream from broadband.

Valuation: retain Buy rating with a S$2.00 price target We maintain our Buy rating on M1 as the company provides a stable dividend and potential mid-to-long-term growth through NBN. We base our price target on DCF, using a WACC of 8.6% and 0% terminal growth.

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