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What Investors Need to Know about M1’s Latest Second Quarter Results


Telecommunications provider M1 (SGX: B2F) reported its second quarter earnings yesterday just after the market closed. For a long time, M1 had been accustomed to being the smallest player in Singapore’s telco industry behind Starhub (SGX: CC3) and SingTel (SGX: Z74).

However, M1 may yet see the arrival of a smaller fourth telco in MyRepublic; the daring startup had recently raised additional funding of S$30 million just 2 weeks ago. In any case, let’s return to M1.

Financial performance for M1

Source: M1 Earnings release

Based on the graph above, M1 derives the bulk of its operating revenue from Mobile Services. While revenue for that segment grew from S$162 mil to S$168 mil, it was negated by the drop in handset sales from S$37 million to S$31 million. In addition, International call services also decreased from S$30 million to S$24 million.

As a result, the company’s total revenue for the second quarter of 2014 actually decreased from S$245 million to S$240 million. But, that didn’t stop M1’s bottom-line growth: The telco’s quarterly profit actually edged up by 12.1% year-on-year to S$44 million. A 10% drop in M1’s cost of goods sold had helped to blunt the impact of a revenue decrease.

Although M1’s latest financials indicate that the company remains in a healthy financial position – its net debt (total borrowings minus total cash) to equity ratio is at a manageable 0.7 – it’s also good to point out that its balance sheet has weakened compared to a year ago. For instance, the company’s cash & cash equivalents had dropped by almost 70% from S$52.5 million to S$16.4 million, causing its net debt position to rise from S$197.5 million to S$244.4 million.

Operating performance & customer statistics

M1 continues to see its postpaid customer base growing steadily – albeit slowly – as seen in the table below.

Period Customer numbers (millions)
Second quarter of 2013 1.116
Third quarter of 2013 1.125
Fourth quarter of 2013 1.130
First quarter of 2014 1.138
Second quarter of 2014 1.148

Source: M1 earnings release

But despite growth in one segment of its customer base, there’re some other important things for investors to note about M1’s business. For the first time in a year, M1’s prepaid customer base has fallen below the 900,000 mark to reach only 855,000 customers.

Furthermore, a comparison between the first half of 2013 and 2014 shows that while the postpaid segment saw marginal improvement in monthly average revenue per user (ARPU) of 1%, the prepaid segment posted a large drop of 16% in ARPU. According to M1, it also seems to be falling behind its bigger peers – SingTel and Starhub – as its overall market share in the mobile market in Singapore has declined from 25.7% a year ago to 24.6%.

The company’s certainly not sitting idly by and is actually trying to correct the situation. In M1’s press release for its second quarter earnings, chief executive Karen Kooi commented on some of the new initiatives the company has launched/will be launching:

“We continually enhance service offerings to the enterprise segment, and in the second quarter, we launched several new high-speed fibre broadband services, including Singapore’s first 10Gbps broadband service on the national fibre network. We will further expand our managed service offerings with United Communications and Network Applications Services. This will be augmented by our cloud-based data centre, which will be ready in the second half of 2014.”

Shares of M1 closed at S$3.63 on Monday and are selling for 20 times trailing earnings. That’s a valuation that’s higher than the Straits Times Index’s (SGX: ^STI) price/earnings ratio of around 14. M1 has also recommended an interim dividend of S$0.07 per share, translating into a dividend yield of 3.88%.

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