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

Telecommunications services provider M1 Ltd  (SGX: B2F) reported its fiscal first-quarter earnings yesterday. The reporting period was for 1 January 2015 to 31 March 2015.

M1 is the smallest of the big trio in Singapore’s telco industry behind Starhub Ltd  (SGX: CC3) and Singapore Telecommunications Limited  (SGX: Z74).

You can learn more about M1 in here and look at the company’s last quarter’s earnings here.

Financial highlights

Here’s a rundown on the latest financial figures from M1:

  1. Overall revenue in the first quarter for M1 rose 22.8% to $295 million compared to a year ago. This was mainly driven by a 150% increase in handset sales.
  2. Excluding handset sales, services revenue – which consists of fixed services, international call services, and mobile services – was relatively flat when pitted against the same quarter last year.
  3. The net profit line only rose by 6.6% to $45.7 million for the quarter, as much of the company’s overall revenue growth was due to a boom in handset sales which came with higher cost of sales.
  4. Earnings per share (EPS) followed suit with a 5% increase from 4.6 cents in the first quarter last year to 4.9 cents in the reporting quarter.
  5. Cashflow from operations came in at $58.6 million for the first quarter of 2015 with capital expenditures clocking in at $25.1 million. This gave M1 a positive free cash flow of $33.5 million, down from $41.3 million seen a year ago.
  6. As of 31 March 2015, the group had $17.8 million in cash and equivalents and $253.8 million in debt.

In short, M1’s revenue and profit has continued to move up on year-on-year basis.

The services revenue is the more important component to watch as the increase in handset sales tend to coincide with the launch of popular handsets (such as Apple’s iPhone). For the services revenue, the flat result this quarter was slower than the preceding quarter’s 2.4% rise.

M1’s cash balance has fallen to $17.8 million this quarter compared to $103.9 million a year ago while debt has increased to $253.8 million from $146.1 million. This may be something worth keeping an eye on for investors.

Operational highlights

The 1.6% sales increase for M1’s mobile services segment was driven by a slight 1.6% growth in the company’s postpaid subscriber base, which was tapered by a lower average revenue per user (ARPU).

Average smartphone data usage increased from 2.8 GB (gigabyte) per month in the first quarter of 2014 to 3.2 GB per month in the reporting quarter. Data plans’ ARPU fell by 10.3% on year-on-year comparison due to bundling with fixed services.

Despite the rise in revenue in mobile services, M1’s overall market share (including post-paid and pre-paid subscribers) shrank from 25% a year ago to 22.8%. On the flipside, M1 managed to reduce its churn rate (rate of customers leaving) to 1% compared to 1.2% in the preceding quarter.

Compared to the first quarter of 2014, the reporting quarter also saw a 19% increase in revenue to S$19.3 million for the fixed services segment. The growth for the segment came from a 20% jump in fiber broadband subscribers to 108,000 as well as an 8.6% increase in fiber broadband ARPU (on a year-on-year basis). On a sequential basis, fibre ARPU actually dipped by 2.4%.

Looking at the year ahead, management will be looking to tap on the launch of new fixed services, including ultra-high speed broadband plans, data centre, and cloud-based applications with government and corporate sectors. M1’s management team also expects moderate growth in net profit after tax.

Foolish summary

At M1’s current price of $3.93, it’s trading at a price-to-earnings ratio of 20.5 based on a trailing EPS of 19.2 cents per share and has a dividend yield of around 4.8% based on a trailing-12-months dividend of 18.9 cents per share.

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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.