M1's profits climbed a measly 1.7% to S$41m

Thanks to one-off boost from pre-paid cards.

According to OCBC Investment Research, M1 Ltd reported its 1Q13 results last evening. Net profit grew 1.7% YoY and 8.2% QoQ to S$41.0m, meeting 26.5% of its FY13 forecast.

OCBC noted that it may have also gotten a one-off boost from recognizing the unused credit in expired pre-paid cards that were periodically terminated.

Here's more:

Revenue of S$243.0m (-7.4% YoY, -25.8% QoQ) met just 21.3% of its full-year forecast, mainly due to lower handset sales and also mix of handsets (Android now makes up >50% of its postpaid subscriber base).

And as subsidies for Android smartphones are amortized upfront, service EBITDA margin eased to 39.5% in the quarter from 41.6% in 4Q12 (40.1% in 1Q12).

Nevertheless, net profit grew 1.7% YoY and 8.2% QoQ to S$41.0m, meeting 26.5% of our FY13 forecast. It may have also gotten a one-off boost from recognizing the unused credit in expired pre-paid cards that were periodically terminated.

No change to 2013 guidance
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, enticed by the roll-out of more affordable low- to mid-end 4G smartphones.

M1 revealed as it has about 223k 4G subscribers as of end 1Q13, versus 146k in the prior quarter. Management also cites a likely acceleration of fiber adoption as a driver as margin will improve with scale – M1 has added 8k NBN customers in 1Q13, bringing the total to 60k.

As before, M1 intends to spend S$130-150m on capex to expand its mobile coverage and capacity (just signed a deal to invest S$85m to improve its 3G coverage). We also expect M1 to retain its minimum 80% dividend payout ratio.

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