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Investor CentralM1 Ltd - Will M1 declare another big dividend this year - which of the brokers is right?
27/1/2014 – Analysts are divided whether M1 Ltd will pay another special dividend in 2014, in the wake of a hefty payout announced at the end of the 2013 financial year.
Meantime, the telco says the nationwide rollout of 3G network is finally scheduled to complete by the end of Q1 this year.
Also, the task of upgrading its 4G network to LTE-Advanced will be completed by the end of the year.
In 2014, M1 Ltd anticipates further growth in mobile data revenue driven by greater use of smartphones.
The operator also feels the growth in fibre services revenue will continue on the back of an increase in users.
However, scrutiny of the earnings report reveals the average revenue per user (ARPU) of both mobile data and fibre services fell sharply in 2013.
The company just announced earnings for Q4 FY13:
Revenue: -14.9% to S$278.6 mln
Profit: +6.9% to S$40.5 mln
Cash flow from operations: S$50.9 mln vs S$35.2 mln
Final Dividend: 7.1 cents per share vs 6.3 cents per share
Special dividend: 7.1 cents per share vs 1.7 cents per share
Capex guidance: S$130 mln
Revenue was lower due to fewer handset sales.
M1 Ltd’s EBITDA for Q4 declined 2.1% to S$79.1 mln.
Net profit was higher due to a 44.8% decline in tax expense compared to Q4 last year.
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Bullish analyst report
Analyst Gregory Yap at Maybank Kim Eng finds the 2013 profit below estimates due to lower-than-expected contribution from the fibre business.
That’s also the reason he has reduced his earnings forecast for FY14-FY16.
However, the broker expects the company to declare a hefty dividend even for 2014.
Maybank Kim Eng maintains a BUY rating on M1 Ltd, which is its top pick in the sector, with a target price of S$3.86.
Positively surprised by the earnings, PhillipCapital maintains an ACCUMULATE rating on M1 Ltd with a target price of S$3.68.
Bearish analyst report
Analysts Carey Wong and Andy Wong at OCBC Investment Research find the full-year revenue 3.8% short of their forecast, whereas net profit exceeded their estimate by 3.5%.
The broker highlights that management expects single-digit earnings growth.
In conversation with the broker, management also acknowledged the price competition in the fibre business.
However, it feels this is due to promotions, not because prices will always be this low.
According to slide 17 of the 2013 earnings presentation, M1 Ltd’s fibre customers have increased to 85,000 from 52,000 last year.
While the customer base kept swelling quarter after quarter, the average revenue per user (ARPU) declined consistently.
On average, users spent S$46.10 per month, 9.3% than the previous year.
OCBC’s report adds, M1 Ltd anticipated further erosion in fixed services ARPU due to growing adoption of mass market plans offering 200Mbps at S$39 per month.
OCBC has reduced its revenue forecast for 2014 by 8% but it has raised the net profit estimate by 2%.
The broker feels the company is unlikely to declare a hefty special dividend at the end of 2014.
It maintains a HOLD rating on the stock with a higher target price of S$3.30 compared to S$3.17 previously.
1. What led the 10.9% growth in prepaid mobile revenue in 2013?
In the earnings report (page 15), the company said prepaid mobile revenue increased 10.9% to S$85.8 mln in 2013.
That’s despite a 3.4% fall in the number of prepaid customers, a 5.4% drop in monthly minutes of use per active prepaid customer, and a 3.9% drop in average monthly revenue per prepaid customer.
The revenue growth seems really remarkable in the light of M1 Ltd’s smaller market share in the prepaid mobile business of 25.6% compared to 26.7% last year.
Therefore that makes us wonder the factors that led to a higher prepaid mobile revenue in 2013.
2. Are its marketing efforts actually paying off?
M1 Ltd’s ‘advertising and promotion’ expense increased 10.5% in 2013 (page 16).
Still, the operator lost market share across the board.
Therefore that makes us wonder the aim of increased marketing and whether the desired objective was achieved.
3. Why did it lose the market share in 2013?
M1 Ltd’s overall market share slipped to 25.3% from 26.1% in 2012.
The prepaid mobile market share stood at 25.6%, down from 26.7% last year.
The postpaid mobile market share of M1 Ltd shrunk to 25% from 25.7% earlier.
What are the reasons for which it lost the market share?
And what is it doing to regain the lost ground?
Finally, how much market share does it expect to control in the medium to long term?
(Total number of questions in the full story: 7)
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