SINGAPORE (Jan 25): CIMB is reiterating its “hold” recommendation on M1 with a target price of $1.85, following the group’s 4Q17 earnings announcement.
During the quarter, M1’s earnings fell 2.5% y-o-y to $31 million, due to lower handset sales.
Operating revenue also saw a 2.1% drop to $307.2 million from $313.9 million last year.
See: M1 posts 2.5% drop in 4Q earnings to $31 mil on lower handset sales
See also: M1 put on 'hold' given strong competition ahead
Despite FY17 core EPS missing the research house’s expectations, the group continues to show growth in its mobile service revenue, driven by contributions from postpaid and Circles.Life.
M1’s fixed service growth for the quarter also accelerated to 32.7% y-o-y on the back of an increased fibre customer base, 4.9% rise in ARPU to S$45 (upgrades to higher-end residential plans) and higher revenue booking from customer projects.
The group says that the corporate segment formed 10% of its customer base and 50% of its fixed services revenue in 4Q17.
In a Wednesday report, analyst Foong Choong Chun says, “We raise FY18/19F core EPS by 7.4%/6.9% after: factoring in higher fixed services revenue, deferring the impact from TPG to FY19F and assuming lower handset sales in FY19F.”
The analysts forecasts core EPS to increase by 5.4% in FY18F (led by higher fixed services revenue), then fall 22.3% in FY19F and 15.4% in FY20F on more intense mobile competition and amortisation of 700MHz spectrum rights.
“We believe M1’s share price reflects the competition risk from TPG,” says Foong.
According to the analyst, a good entry point would be below $1.50 (bear case), and a good exit point above $2.20 (bull case).
As at 11.54am, shares in M1 are trading at $1.88 or 12.7 times FY18 core earnings with a dividend yield of 6.3%.
