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What Has Changed For M1 in the First Quarter Of 2014?

Even though M1 (SGX: B2F) is the smallest of the three full-service telecommunication companies in Singapore – the other two competitors are Starhub (SGX: CC3) and SingTel (SGX: Z74) – it should not be just an afterthought for investors.

In fact, when comparing their performance over the past 5 years, M1 stands out tops, producing gains of about 118% for its investors since 2009 before dividends are included. Yet after such a good run, the market capitalisation of M1. at S$3.06 billion, is still less than half of Starhub’s and only 5% of Singtel’s.

Source: Google Finance; M1 (Blue) – Starhub (Red) – Singtel (Orange)

First quarter earnings release

The telco released its first quarter results yesterday and managed to post a 5.7% year-on-year growth in quarterly net profit to S$43 million. This came even as its revenue had suffered a 1.2% drop from a year ago, ending the quarter with sales of S$240million.

But believe it or not, the drop in revenue is actually good news for M1 as the bulk of the drop came from lower handset sales. It is common for a telco to provide subsidies for customers who are buying mobile phones in order to entice customers to sign up for their packaged plans. This usually results in telcos selling these handsets at a loss. Excluding the handset sales, M1 had been successful in growing its service revenue (the revenue that matters) by 2% year-on-year.

Elsewhere, M1’s revenue from the mobile segment continues to grow despite it losing some market share; its market share had dropped to 24.9% for the first month of 2014 from 25.1% in the last quarter of 2013. As for its fixed services segment, the company had been enjoying consistent growth over the past 5 quarters in terms of its customer base.

On the balance sheet side, improvements can also be spotted. Cash and cash equivalents have almost doubled from the corresponding period a year ago (March 2013: S$53.9 million, March 2014: S$103.9 million) while net debt (total debt minus total cash) had been reduced by 25% to S$146.1million. That gives the company a lower net debt to equity ratio of 0.3 for the end of the quarter as compared to 0.5 in the previous year.

Going Forward

M1’s management remains optimistic with expectations of moderate growth for the whole of 2014. The company is also upgrading its network to LTE-Advanced and the work should be done by the end of this year. Tapping on the Singapore government’s S$500million Infocomm Technology Solution programme, the company expects to focus more on its offerings for enterprise users.

Although it is unlikely for investors to see huge growth in M1’s corporate performance, the company still has enough opportunities to plod along its existing growth-path nicely and slowly.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.