What Investors Need to Know About M1 Ltd’s Latest Earnings

Telecommunications provider M1 Ltd  (SGX: B2F) reported its fourth quarter earnings yesterday. The reporting period was from 1 October 2014 to 31 December 2014.

M1 is one of the smaller players in Singapore’s telco industry behind StarHub Ltd.  (SGX: CC3) and Singapore Telecommunications Limited  (SGX: Z74). You can learn more about the company here.

Financial highlights

Here’s a rundown on the financial figures reported by M1 in its latest earnings release:

  1. Overall quarterly revenue for M1 rose 24.3% to $346.4 million on a year-on-year comparison. This was driven by a stunning 88.7% increase in handset sales. For the full financial year 2014, sales was up 6.8% to S$1.076 billion compared to 2013.
  2. Excluding handset sales, M1’s services revenue for the fourth quarter of 2014 – which consists of fixed services, international call services, and mobile services – was up 2.4% compared to the same period last year.
  3. Net profit for the quarter only rose by 9.9% to $44.5 million, as much of the revenue growth was due to handset sales, which came with higher cost of sales (in other words, handset sales come with a lower gross profit margin).
  4. Earnings per share (EPS) for the quarter followed suit with a 9% increase to 4.8 cents from 4.4 cents in the fourth quarter last year. The telecommunications company closed 2014 with 18.9 cents in annual EPS.
  5. Cashflow from operations came in at $37.1 million for the fourth quarter of 2014 with capital expenditures clocking in at $39.4 million. This gave M1 a negative free cash-flow of $2.3 million. For the full year, the company had $133.3 million in positive free cash-flow, a decline from the figure of S$176.7 million seen for the whole of 2013.
  6. As of 31 December 2014, M1 had $22.8 million in cash and equivalents and $302 million in debt. Exactly a year ago, these figures were $54.5 million and $250 million respectively.

In short, M1’s revenue and profit has continued to move up on a year-on-year basis. Services revenue is the more important component to watch as the increase in handset sales tends to coincide with the launch of popular handsets such as Apple’s iPhone. For Services revenue, the 2.4% rise was slightly faster than last quarter’s 1% rise.

The telco’s balance sheet is something investors might want to observe given that the firm’s highly geared. On that note, M1’s balance sheet has weakened given that its net-debt (total borrowings minus total cash) position had grown from $195.5 million at the end of 2013 to $279.2 million.

A final dividend of 11.9 cents per share was proposed. Including the interim dividend of 7 cents per share, M1 closed the financial year 2014 with a proposed total dividend payout of 18.9 cents per share. This is about 10% lower than the 21 cents per share in dividends paid out in 2013, which included a 7.1 cents special dividend.

Operational highlights

The Mobile services segment saw quarterly year-on-year revenue growth of 5.3%. The growth in the segment was driven by an increase in M1’s postpaid subscriber base, and a higher average revenue per user (ARPU). Despite the rise in sales, M1’s overall market share (including post-paid and pre-paid customers) shrank from 25.1% a year ago to 23.1%.

Compared to a year ago, the fourth quarter of 2014 also saw a 17% increase in revenue for the Fixed services segment. The increases for the segment came from a 24% increase in fiber broadband subscribers to 103,000. The sales growth came together with a 6.4% increase in ARPU which is a positive development.

On December 2014, M1 launched Singapore’s first nationwide next generation 4G network which doubles mobile download speed to 300 Mbps. The company expects the faster network to drive data growth for 2015. In all, the management team expects moderate growth in net profit after tax for 2015.

Foolish summary

As of its closing price on 19 January 2015 of $3.62, M1 traded at a price-to-earnings ratio of 19.3, and has a dividend yield of around 5.2%.

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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 Chin Hui Leong owns shares in Apple.