M1 revenue slips 1.5% in 1H 2013

Should investors worry about it?

M1 Ltd reported its 2Q13 results last evening, where revenue grew 5.3% YoY (+0.6% QoQ) to S$244.5m. OCBC said it was just 1.4% shy of their forecast, as smartphone customers and usage continue to drive revenue growth.

But it notes that this resulted in a lower service EBITDA margin of 37.1% (versus 38.0% in 2Q12 and 39.5% in 1Q13) due to higher subsidies for these smartphones (also saw an increase in acquisition cost to S$332 from S$320 in 2Q12 and S$319 in 1Q13).

Nevertheless, net profit climbed 11.2% YoY (-4.5% QoQ) to S$39.2m, or about 3% ahead of our estimate. 1H13 revenue slipped 1.5% to S$487.5m, meeting 42.7% of its full-year forecast (due to lower handset sales in 1Q13), but net profit rose 6.1% to S$80.2m, or 51.8% of our FY13 estimate. M1 declared an interim dividend of S$0.068/share, versus
S$0.066 last year. Capex of S$130m – lower end of earlier range.

Going forward, management has kept its 2013 guidance intact i.e. still expecting to see moderate earnings growth, as more subscribers transit to the tiered pricing bundles and generally using more data than before.

In 2Q13, M1 revealed that 26% of its post-paid customers are on these data plans; and 15% have exceeded their data allowance. Meanwhile, M1 has refined its capex guidance to S$130m – the lower end of the earlier S$130-150m range. It had also recently secured 40 MHz of paired spectrum in the 1800 MHz and 2.5 GHz bands at the S$104m reserve price, which will enable it to optimize its nationwide 4G network.

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