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TELECOM

M1 LIMITED
(M1 SP) 19 April 2010

Singapore No major surprises, forecasts maintained


HOLD
Alayne Wong
Price: S$2.12
alaynewong@amfraser.com.sg
Fair Value: S$2.29
(65) 6236-2850
Rationale for report : 1Q10 results review MICA (P) 006/12/2009

YE to Dec FY08 FY09 FY10F FY11F

EPS (cents Singapore) 16.8 16.8 17.5 19.0


PE (x) 12.6 12.6 12.1 11.2
DPS (cents) 13.4 13.4 14.0 15.2
Quick Take
Source : M1, AmFraser estimates
n Headline 1Q10 net profit fall of 6% YoY to $39.3mil, is masked by a tax benefit in 1Q09 which
lowered effective tax rate to 5%.

n Otherwise, results were in line with expectations on the back of a strong economic
recovery. Pretax rose 9% YoY to $47.8mil.

n Mobile service revenues which account for 79% of total service revenues, grew 2% YoY
to $143.3mil. With resumption of foreign worker influx, prepaid subscribers were a bigger
growth contributor (+17% to 863,000) YoY basis. This helped offset 8% YoY fall in prepaid
ARPU to $15.

n More encouraging is that postpaid net adds were a stronger 7,000/mth in 1Q10 (to
933,000), vs 5,700 for prepaid. M1’s launch of iPhones in December 2009 also helped
churn to fall to 1.4% from 1.6% in FY09. While postpaid ARPU of $59.7 maintained at 1Q09
level, this was a slight 2% decline from 4Q09.

n Uptake for M1’s fixed network services contributed $5.9mil revenues, an increase from
$5.3mil in 4Q09 when its acquisition of Qala Singapore (renamed M1 Connect) was first
consolidated. Despite the upcoming launch of NGNBN, management does not expect a
big bang effect as about 20% of coverage will only be addressable in the early days.

n With M1’s recent launch of iPhones and rising demand for smartphones, handset sales
surged almost four-fold YoY to account for 27% of total revenues. Typically handset sales
account for 8% of total revenues.

n Sales of higher value-add phones bode well for data usage. M1 improved non-voice
services to 29.8% of mobile service revenues in 1Q10. Separate data plan subscriptions
doubled to 318,000 from 1Q09. M1 continues to upgrade its network in FY10 to achieve
42Mbps.

n Along with handset sales, handset subsidies surged, largely contributing to 42% jump in
total expenses.

n Couple of bright spots at expense level: (1) cost savings from the completion of its
backhaul network has started to come through with a 15% YoY fall in leased circuit cost
to $11.2mil (2) fall in overall deprecation rate as some fixed assets have been fully
depreciated.

n On balance, we are comfortable maintaining our forecasts. Stock is now trading at less
than 15% upside to our fair value estimate of $2.29. We maintain HOLD rating.

n Dividend yield is also less compelling now at 6-7% p.a., after share price appreciation of
83% over the past 17 months since its low.

n To reflect the group’s strategy to develop from a predominantly mobile base to become
a multi-service telecom provider, the group is changing its name from MobileOne Limited
to M1 Limited.
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M1 19 April 2010

TABLE 1 : 1Q10 RESULTS


YE 31 Dec 1Q10 1Q09 YoY 4Q09 QoQ
S$mil
Cellular Services 143.3 140.3 2% 143.1 0%
International Call Services 32.4 32.0 1% 31.8 2%
Fixed Network Services 5.9 0.1 n.m. 5.3 11%
Handset Sales 67.4 13.9 385% 36.0 87%
Total Revenue 249.0 186.3 34% 216.2 15%
Cost of Sales -130.0 -72.0 81% -99.5 31%
Other Operating Expenses -70.1 -69.3 1% -70.9 -1%
Other rev & finance costs -1.1 -1.0 10% -1.2 -8%
Pretax 47.8 44.0 9% 44.7 7%
Ta x -8.5 -2.2 286% -7.5 13%
Net Profit 39.3 41.8 -6% 37.2 6%

Key Data
Prepaid 863,000 740,000 17% 846,000 2%
Postpaid 933,000 879,000 6% 912,000 2%
Total Mobile Subscribers 1,796,000 1,619,000 11% 1,758,000 2%
Net adds/month in Prepaid 5,667 -2,667 7,333 -23%
Net adds/month in Postpaid 7,000 -1,333 6,333 11%
Monthly ARPU (S$)
Prepaid 15.0 16.3 -8% 14.4 4%
Postpaid 59.7 59.7 0% 61.2 -2%

Non-voice services 29.8% 25.1% 27.1%


Churn Rate 1.4% 1.6% 1.6%

Source: M1

TABLE 2 : KEY ASSUMPTIONS

YE Dec FY07 FY08 FY09 FY10F FY11F

Prepaid 679,000 748,000 846,000 918,000 990,000


Postpaid 856,000 883,000 912,000 969,000 1,005,000
Total Mobile Subscribers 1,535,000 1,631,000 1,758,000 1,887,000 1,995,000
- Subscriber Growth 14.8% 6.3% 7.8% 7.3% 5.7%
Monthly ARPU (S$)
Prepaid 19.6 17.3 15.2 14.0 13.5
Postpaid 65.6 63.9 60.4 59.0 59.2

Source: M1, AmFraser estimates

TABLE 3 : COST STRUCTURE


YE Dec FY07 FY08 FY09 1Q10 FY10F FY11F
S$mil
Handset costs 133.1 127.7 137.3 83.0 285.7 293.0
Traffic expenses 46.5 52.4 56.2 13.7 55.9 58.7
Leased circuit costs 41.5 39.5 53.6 11.2 49.3 51.8
Other costs 75.2 81.1 79.7 22.2 77.0 80.0
Cost of Sales 296.4 300.7 326.9 130.0 467.9 483.5
Staff costs 91.6 85.9 75.9 21.0 87.3 93.4
Advertising & promotion 19.2 20.2 20.9 5.4 25.1 30.1
Depreciation & amortisation 116.7 123.9 128.1 27.7 112.5 112.7
Prov for bad & doubtful debt 19.0 16.9 4.3 4.2 13.0 14.0
Facilities & gen & admin 59.2 61.4 45.6 11.7 46.5 50.2
Total Operating Expenses 602.2 609.0 601.8 200.1 752.3 783.9

Source: M1, AmFraser estimates

AmFraser Securities Pte Ltd 2


M1 19 April 2010

TABLE 4 : EARNINGS FORECASTS


YE Dec FY07 FY08 FY09 FY10F FY11F
S$mil
Mobile Services 600.1 601.4 565.7 592.1 625.7
International Call Services 127.1 137.1 128.3 130.9 137.4
Fixed Network Services 0.0 0.0 6.7 26.0 31.2
Total Service Revenues 727.2 738.5 700.8 749.0 794.4
Handset sales 76.1 62.1 80.8 200.0 200.0
Total Revenues 803.3 800.6 781.6 949.0 994.4

EBITDA 320.8 316.5 310.3 310.1 325.5


EBITDA margin (on Service Rev) 44% 43% 44% 41% 41%
Depreciation & amort 116.7 123.9 128.1 112.5 112.7
Interest exp -9.5 -7.6 -7.0 -8.1 -7.8
Other rev 3.0 1.0 0.5 1.0 2.4
Pretax 194.5 185.0 175.1 189.5 205.1
Ta x -22.7 -34.9 -24.8 -32.2 -34.9
Net Profit 171.8 150.1 150.3 157.3 170.2
ROE 85% 67% 59% 53% 50%

Source: M1, AmFraser estimates

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for AmFraser Securities Pte Ltd


Alayne Wong