Friday, July 16, 2010

M1

M1 reported in-line 2Q10 net profit of $40.8m (+10% yoy), bringing 1H earnings to $80.1m, up 1.5% yoy. Interim dividend was raised slightly to 6.3¢/share but market may be disappointed with no mention of a much touted special dividend. 2Q revenues grew 17% to $223m driven by 161% surge in handset sales. M1 added 53k subscribers to 1.85m, faster than 1Q10’s net-add of 38k. Postpaid ARPU was flat qoq while prepaid ARPU fell slightly on lower int’l traffic due to tariff reductions. Mobile broadband continued to gain traction. The voice revenue erosion was offset by higher data usage.

Operating expenses fell 17% qoq as handset costs eased and M1 continued to migrate traffic to its own backhaul network, thereby reducing leased circuit costs. Coupled with lower acqn costs, service EBITDA margin recovered to 43.7% from 42.4% in 1Q10.

M1 remains the best positioned to benefit from the NGNBN launch in Oct/Nov. With net debt/EBITDA at just 0.9x, mgmt remained open to gear up the balance sheet to a comfortable level of 1.5x, hence a capital mgmt remains a possibility in future quarters. We maintain our forecasts and BUY call with TP of $2.62.

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