Operating costs grew to more expensive handsets and fixed services costs.
M1's net profits in Q3 dipped 4.8% YoY from $34.4m in 2016 to $32.8m in 2017, according to DBS Equity Research.
For the first nine months, operating expenses grew 4.8% to $633.3m due to higher handset costs and higher wholesale costs of fixed services. Net profit after tax (NPAT) for nine months slipped 13.9% to $68.6m, whilst operating profit fell 5% to $228m.
For Q3, operating expenses rose at a slower pace of 0.6% YoY to $209.1m, thanks to a 21.8% decline in advertising and promotion expenses. Earnings went up 1.3% YoY to $75.5m. However, NPAT fell 4.8% YoY to $32.7m as taxation increased 13.1% to $7.2m.
Q3 revenue grew 1% to $251.6m, thanks to a 19.9% growth in fixed services and 3.4% growth in mobile postpaid, which offset lower handset sales and international call services.
DBS also said M1's fixed services revenue growth was driven by a 20.0% YoY increase in customer base despite a 6.1% decline in average revenue per user (ARPU), whilst mobile revenue growth was mainly driven by higher post-paid customer base and flat YoY ARPU.
Here's more from DBS Equity Research:
For FY17, M1 keeps its guidance unchanged: 1) capex to be around $150m, 2) expects NPAT to decline YoY for FY17, and 3) intends to maintain 80% dividend payout ratio for FY17.
Looking ahead, we believe competition within the mobile segment will continue to put pressure on ARPU with the impending entry of TPG as well as the announced intention of MyRepublic to launch mobile services as a Mobile Virtual Network Operator (MVNO).
Whilst M1 has recently launched nationwide NB-IoT network, it expects mass adoption to take time as a new technology and with the eco-system still evolving. Separately, we do not expect M1’s ICT business to contribute materially in the near-term as it needs time to ramp up as well.
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