SINGAPORE (Oct 17): M1 has received four “holds”, one “buy” and one “sell” from research houses after posting its results on Monday.
In 3Q, the group saw earnings decline 4.9% to $32.7 million, mainly due to higher depreciation and interest expenses.
9M earnings dropped 13% to $101.5 million.
However, the group saw a 1% increase in its operating revenue to $251 million compared to $249.1 million the same period last year, due to higher postpaid and fixed services revenue, but was offset by lower international call services revenue.
See: M1 posts 4.9% decline in 3Q earnings to $32.7 mil
Despite the fall in earnings, RHB is maintaining its “neutral” call on M1 with a target price of $1.90.
In a Tuesday report, RHB says that the fall in earnings was broadly in line with their predictions as subscriber acquisition cost (SAC) is expected to trend higher in the next quarter from the launch of iPhone’s new handsets as well as the group’s enhanced mySIM plans.
“We view the introduction of new data plans as largely pre-emptive and comes ahead of the launch by TPG Telecoms (TPG). The datacentric plans herald the return of unlimited mobile data in the market (tiered data plans were launched in 3Q12 to replace unlimited offerings),” says RHB’s research team.
According to RHB, M1’s core earnings are projected to fall further by 11.2% y-o-y in 2017 due to intensifying competition and as telcos aggressively lock-in customers ahead of the entry of TPG.
Meanwhile, Maybank Kim Eng is maintaining its “sell” on M1 with a target price of $1.59.
Analyst Luis Hilado expects $11 million in losses in the coming quarter due to heavy 4Q17 handset subsidies as the iPhone X makes its initial impact.
Furthermore, the return of unlimited data plans cap data yields and set up potential competition in the future.
“Despite the significant underperformance of the stock, we see further downside risk as consensus earnings are too high, in our view. Competitive intensity is also set to increase,” says Hilado.
DBS is maintaining M1 at “fully valued” with a target price of $1.49.
Analyst Sachin Mittal says, “Despite revenue share gains since 3Q16, we expect M1’s earnings to trend downwards due to adverse impact of fair value accounting for iPhone and higher staff costs to grow its enterprise business.”
The analyst expects that the group’s earnings to decline even further in the unlikely scenario that it stabilises its EDBITA over FY18/19, due to high network and spectrum investments. This will lead to higher depreciation, impacting dividends.
Circles.Life's success as an MVNO (Mobile Virtual Network Operator), on top of TPG’s entry in late 2018, further adds to the sector’s woes
Concurrently, CIMB is reiterating its “hold” rating with a target price of $1.80.
Analyst Foong Choong Chen says, “For FY18F, we forecast service revenue to ease by 0.6%, led by a 2.5% decline in mobile as competition starts to heat up around TPG’s expected service launch in 2H18.”
Due to the full-year impact of competition from TPG, M1’s service revenue is expected to decline by 2.6% in FY19, with a bigger 5.1% drop in mobile revenue.
“We believe M1’s share price now better reflects the competition risk from TPG,” says Foong.
OCBC Research is also maintaining its “hold” call on M1 with a target price of $1.65.
With the impending entry of TPG and MyRepublic intending to launch MVNO mobile services, analyst Eugene Chia believes that competition within the mobile segment will continue to put pressure on the average revenue per user (ARPU).
M1’s ICT business is also not expected to contribute materially in the near-term, as similar to its NB-IoT network, it needs time to ramp up.
UOB Kay Hian is the only brokerage reiterating its “buy” on M1 with a target price of $1.95 as the group managed to sustain growth of its postpaid subscribers with revenue increasing 5.4%.
Meanwhile, revenue from M1’s fixed services increased 19.9% y-o-y, contributing 15.7% of service revenue.
Analyst Jonathan Koh says that the response for M1’s MySIM to address customers’ need for more data is also encouraging.
Shares in M1 are trading 2 cents lower at $1.78 as at 11.37am.
