MobileOne - cost control still the key focus

Despite aggressive promotions in 2Q09, MobileOne (M1) was able to improve its service-EBITDA margin on the back of tight cost control. M1 expects to make further savings on operating expenditure from the rollout of its own backhaul infrastructure, and moving its call-centre operations offshore to Malaysia by the end of December 2009.

The ‘Take 3’ promotion, which targets high-end subscribers, had a small impact on 2Q09 earnings as the handset subsidies are capitalised and amortised over a 24-month service contract. We estimate the service-EBIT margin would have declined by two percentage points if the handset subsidies had been charged as they were incurred.

M1 disclosed that it aims to achieve over a 20% share of the corporate and residential broadband market by 2015, but remained tight-lipped about its transformation strategy.

We have revised up our net-profit forecasts for FY10-11 by 2-4% to take into account M1’s cost-control initiatives. As a result, we have raised our six-month target price to S$1.51 from S$1.47, based on a target PER of 9x on our revised FY10 EPS forecast. We maintain our 4 (Underperform) rating given what we see as M1’s uncertain transformation strategy, while cost control is unlikely to be a strong share-price catalyst.

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