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Investor CentralM1 Ltd - MANAGEMENT REPLY - Why has market share slipped by 0.5% YoY?
25/9/2013 – Analysts are excited over M1's 10-year all-time high in mobile service revenue.
And the stock has held on to share price gains since releasing its Q2 results.
This performance comes after the telco launched its 4G islandwide Singapore network in September last year.
More recently in July, it has joined the Pay TV market with MiBox, a new subscriber television service which it plans to capture yet more revenue with.
While the analysts are thrilled, they have reservations with price targets ranging from S$3.10 to S$3.69.
These are the company's Q2FY13 financials published on July 16:
Revenue: +5.3% to S$244.5 mln
Net Profit: +11.2% to S$39.2 mln
Cash flow from operations: S$81 mln vs S$101.8 mln
Cash Reserves: S$52.5 mln vs S$9.7 mln
Order Book: n/a
Final Dividend: 6.8 cents vs 6.6 cents
Revenue climbed 5.3% on the back of positive contributions from mobile, IDD and fixed line services.
But handset sales decline by 11.2% due to lower selling prices.
Net profit jumped 11.2% as costs grew slower than revenue.
Less is being spent on broadband spectrum as the company secured a reserve price of S$104 mln for 4G spectrum rights.
This new spectrum not only enables 4G deployment but LTE-Advanced technology as well when it becomes available.
Accordingly, M1 revises downward its capital expenditure guidance to the lower end of its initial S$130 mln to S$150 mln estimate.
1. Why has market share slipped by 0.5% YoY?
Management reply: Our market share has remained stable this quarter. Yes, this is considered stable in-line with usual business operations, and if you compare QoQ instead of YoY, we have seen a 0.1% increase in overall market share, which we also deem stable.
Just to clarify, the 25.4% overall market share statistic applies to end April-13 (based on published information available at the time of our results announcement), and not end June-13. The YoY decrease of 0.5% in overall market share can be attributed more to the prepaid segment as we carried out an exercise of termination of expired prepaid cards during 1Q13. All the operators carry out such exercises for the prepaid segment once in a while and it is also good to note that in this segment, the three operators carry out promotions at different times, so take-up of prepaid cards could fluctuate up or down depending on the timing of these promotional activities. For the same period, our postpaid market share has remained stable.
2. What is the difference between Postpaid, Prepaid and Cellular Customer Base market share?
Management reply:As for your other query, postpaid market share refers to postpaid subscriber market share (i.e. customers who have signed on a 2 year contract paying a monthly subscription) and similarly, prepaid market share refers to prepaid subscriber market share as well whereby customer pay upfront for these prepaid cards and top-up thereafter when their initial value runs out. When you mentioned cellular customer base market share, I presume you meant what we term as "overall market share"? That is simply a combination of the prepaid and postpaid market shares into an overall market share.
The Q2 results report reveals M1 currently has Postpaid market share of 25.6%, down by two percentage points from last year.
Its Prepaid service market share slipped to 25.2% from 26.1%.
On the whole, M1 has a 25.4% market share for cellular services; a decrease by five percentage points.
3. What impact has the end of unlimited data plans had?
Average Revenue Per User from Data plans (page 15) has fallen 10.1% to S$21.30.
This is surprising, given that the whole point of ending unlimited data plans was to make more money from data, not less.
Management reply: The introduction of tiered data plans has had a positive impact on the mobile segment. Our 2Q13 postpaid ARPU has increased 2.0% QoQ to S$62.30, due to increasing take up of these plans.
Customers have generally not been resistant to the tiered data plans, as they are able to enjoy faster surfing speeds on these plans through our 4G network. As at 2Q13, 26% of our postpaid base are on tiered data plans, compared to 20% in 1Q13 and 14% in 4Q12. There will be some customers who choose to remain on their previous 12GB data plans but they remain in the minority and no handset subsidies are provided for this group of customers, until they choose to re-contract.
4. How are customers taking to 4G services since its launch last year? Is this tracking above or below expectations?
Management reply: We see an increasing number of 4G customers since launch in September 12, which is a positive trend. As at 2Q13, we have 307,000 4G customers, compared to 223,000 in 1Q13 and 146,000 in 4Q12. We will continue to monitor the 4G conversion rate, which should accelerate with the introduction of more 4G handsets over time.
5. MiBox is two to three months old. How is it faring? What are M1's immediate plans for this Pay TV business?
Management reply: MiBox was launched end July 13, so it is still early days but response has been encouraging to date. Our MiBox service is an Internet TV service that offers video-on-demand entertainment and educational titles, games and apps at an affordable price, which is meant to cater for a shifting media landscape that is going towards an on-demand, a-la-carte model.
Investor Central content is available on the MiBox.
Moody's Asia Pacific mobile industry outlook for 2013 provides some assurance that no decline is in sight.
CIO Journal's 2013 Telecom Industry Outlook also adds reinforcement saying demand for data services remain healthy as consumers "mature" and demand more mobility.
Management notes in its outlook for mobile services that as customers are taking on more smartphones, broadband data traffic has gone away from data cards and also, the average usage per smartphone user has increased.
On the fixed services segment, it reiterates that it continues to champion fibre services and will continue to enhance service offerings to drive customer uptake.
Analysts surveyed by Reuters have an average OUTPERFORM call with a price target of S$3.40.
(Total:9 questions and answers)
We thank management for its responses.
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