M1

M1: FY13 results broadly in line, sweetened by dividend surprise Although its top line showed a decline, M1’s overall operating performance for both 4Q13 and FY13 came in broadly in line. The key surprise was the generous dividend declared, comprising a final dividend of 7.1¢ and a special dividend of 7.1¢. This brings FY13 DPS to $0.21/share, which translates to 6.5% yield – the highest among the S’pore telcos. M1’s 4Q13 net profit rose 7% y/y to $40.5m, even as revenue fell 15% to $278.6m, mainly due to a tax credit from overprovision in the previous year. The group’s top line was dragged by lower handset sales (-46% y/y), nevertheless, its service revenue (a more accurate reflection of a telco’s business) expanded 7% to $207m, driven by growth in the number of postpaid mobile (+3.2%) and fibre broadband (+63%) subscribers and higher revenue from mobile data (+4ppt to 41.6% of service revenue). As at end 2013, M1 recorded a mobile customer base of 2.11m, flat y/y, as the 35k postpaid customers added offset the same decline in prepaid customer numbers. The telco added 33k fibre customers during the year, bringing its customer base to 85k, or ~18% share. Mgt notes growth in 2014 will be driven by mobile data and fixed services. Mobile data will be driven by customers upgrading their smartphone plans and increasing adoption of smartphones by prepaid customers. Fixed services will benefit from the increasing fibre adoption in both customer and enterprise segments. M1 will be upgrading its 4G network to LTE-Advanced,which can offer throughput speeds of up to 300Mbps by year end. Mgt expects moderate growth (“single-digit”) in net profit for FY14. Latest broker ratings as follows: Deutsche maintains Buy with TP $3.72 Nomura maintains Buy with TP $3.75 (from $3.70) Credit Suisse maintains Outperform with TP $3.72 (from $3.60) Daiwa rates at Hold with TP $3.11