M1

M1: M1's 1Q16 net profit of $42.5m (-6.9% y/y, -2.5% q/q) came in line with expectations, constituting 24% of street's full year estimates.

Revenue softened to $257.6m (-12.6% y/y, -16.3% q/q) largely from reduced handset sales (-40.1% y/y, -45.2% q/q) and lower service revenue (-0.5% y/y, -2.7% q/q) on lower mobile (-1.9% y/y, -3% q/q) and IDD (-16.2% y/y, -2.4% q/q) sales, though partially mitigated by growth in the fixed segment (+26.4% y/y, -1.1% q/q).

Mobile postpaid revenue slipped to $144.7m (-1.8% y/y, -3.1% q/q) despite a higher customer base of 1.2m (+4.4 y/y, +1.1 q/q), as ARPU slid 5.5% (-4.9% q/q) to $58.60/month, diluted by a previously launched SIM-only plan, which commanded lower subscription price.

The prepaid segment added 21,000 new accounts to 734,000 (+3% y/y, flat q/q) but failed to lift revenue of $18.7m (-2.2% y/y, -2.3% q/q), depressed by weaker ARPU of $13.20/month (-12.6% y/y, -5.7% q/q) due to lower voice traffic.

Meanwhile, IDD call revenue continued to be affected by changing consumer patterns as users shifted away from voice to VOIP channels. This was corroborated by the increase in average postpaid smartphone data usage to 3.3GB/month (1Q15: 3.2GB/month)

Fixed services was the standout as the number of subscribers to its fibre broadband grew to 136,000 (+26.1% y/y, +6.8% q/q), driven by a larger residential customer base and new corporate contracts, while ARPU rose 3.5% (-1.3% q/q) to $46.90/month as it successfully converted subscribers to higher tiered plans.

EBITDA margin on service revenue held steady at 40.9% (+0.1ppt y/y, -1.3ppt q/q).

Total customer base increased to 2.08m (+5.1%) with overall market share of 23.3% (+0.2ppt).

For the full year, M1 maintained its guidance of a stable performance. On the plus side, postpaid net-adds have exceeded StarHub’s in the past three quarters. Maybank KE does not expect the ARPU slide to worsen, and service revenue should slide in the single-digit range at worst.

The biggest uncertainty lies in the possible entry of a fourth mobile operator and potentially high spectrum spend in the next two years.

However, Maybank KE is of the view that the 6% dividend yield should support the stock on the downside.

Latest broker ratings:
Deutsche maintains Buy with TP of $3.90
Maybank KE maintains Hold with TP of $3.09
UOB Kay Hian's Buy rating is under review with TP of $3.02
OCBC maintains Buy, cuts TP to $2.90 from $2.95
CIMB maintains Hold with TP of $2.40
Credit Suisse maintains Underperform, cuts TP to $2.05 from $2.15