M1's 5,000 fibre subscriber net adds in 1Q14 disappointed analysts

Usual run rate is 7-8,000.

According to Barclays, M1’s 1Q14 reporting card was broadly inline with expectations – EBITDA was S$81.2mn (+3% y/y) and net income was S$43.1mn (+5% y/y). 

"We see M1’s current yield of 4.5% as sustainable but not a standout among regional peers, and this together with its challenging valuation case (17.4x 2014E P/E and 10.0x 2014E EV/EBITDA) is the main reason keeping us EW," Barclays said.

Here's more from Barclays:

A broadly inline 1Q14 reporting card: EBITDA of S$81.2mn (+3% y/y) was broadly inline with our S$82mn view, given EBITDA margin (off service revenue) at 39.8% in 1Q14 was slightly ahead of our full year forecast of 38.5% while revenue (S$240.2mn, -1.2% y/y) was modestly weaker than our expectation on lower handset sales. Nevertheless, 1Q14 net income of S$43.1mn (+5% y/y) was inline with our estimate of S$44mn.

2014 guidance remains unchanged: Management continues to guide for: 1) moderate growth in net income for 2014 – we incorporate 8% y/y; 2) capex of S$130mn – we have S$129.5mn; 3) dividend payout to be kept at 80% for 2014 – with the spectrum payment coming up in 2014 and 2016, we see an immediate repeat of the special dividend that M1 did in 2013 as unlikely and forecast S$0.15 DPS in 2014E, which implies a current yield of 4.5%.

We note mobile data revenue continues to grow strongly at 29.3% y/y in 1Q14, and now contributes to 32.7% of mobile service revenue (vs. 31% as at 4Q13). Management indicated that 64% of postpaid subscribers are now on the tiered data plans (vs. 49% as at 4Q13) and 16% of them have exceeded their data bundles. Average data usage per smartphone user is c2.8GB per month (vs. 2.2GB in 1Q13).

Fibre subscriber net adds in the quarter was disappointing at only 5k, which compares with a normal run rate of 7-8k. Management explained that 1Q was a seasonally quiet quarter, but assured that the take-up of MiBox (an OTT set box that M1 launched in mid 2013) was on track to meet its target of 10k subscribers by mid-2014.

Fixed line service revenue grew 12.6% y/y but was down 1.8% q/q in 1Q14 due to some promotion activities. Management was upbeat on the outlook given the government’s recent launch of S$500mn incentives for SMEs to take up high-speed connectivity and ICT solutions.

M1 indicated that VoLTE (voice over LTE) will be launched in the coming months, and that the voice quality should be improved noticeably. We will monitor for the usage trend on VoLTE in the future and also whether this new technology could have the potential to slow the data cannibalization trend.