M1 Limited Latest Earnings

M1 Limited (SGX: B2F) reported its fourth-quarter and final-year earnings yesterday evening. The reporting period was for the year ended 31 December 2015.

M1 is the smallest of the three telecommunications company, behind StarHub (SGX: CC3) and Singapore Telecommunications Limited (SGX: Z74).

M1 groups its business under four key segments, namely, mobile services, fixed services, international services, and handset sales. The first three are collectively known as services revenue.

Financial highlights

Operating revenue for fourth quarter was down 11.1% to S$307.9 million. Most of this was attributable to lower handset sales, which was down by 27% to S$98.8 million.

The operating revenue for the total year, though, was up by 7.5% to S$1,157.2 million. This was mainly driven by higher handset sales. Services revenue decreased by 1.1% to S$822.3 million. Net profit increased by 1.5% to S$178.5 million.

Earnings per share were up marginally by 0.9% to $0.191 per share.

Operating cash flow might have come in slightly higher at S$343.7 million but working capital doubled. Consequently, net operating cash flow was down by 20.5% to S$239.1 million.

Capital expenditure was down to S$141.8 million, due to the absence of spectrum-rights purchase, giving a free cash flow of S$97.3 million.

Cash holdings ended at S$10 million with S$322.6 million of current liabilities. There will be a repayment of S$250 million term loan due in May. It is possible that the effective interest rates could rise from the current 1.59%, when M1 refinances the loan which might lower net profits further.

Distributable dividends were also cut from final amount of 18.9 cents in 2014 to 15.3 cents, despite the higher net profit and better earnings per share.

In summary, M1’s financials were decidedly mixed.

Mobile services declined by S$3 million, despite an increase in the mobile customer base of 76,000 to 1.93 million. It would appear that the company could be under pressure from price competition. Average revenue per user (ARPU) shrank over a dollar per post-paid customer.

Revenues from international call services declined by 22% to S$69 million. The trend could continue, as customers switch to internet calls when overseas.

Mobile data is an increasingly important source of revenue for M1. In 2015, 46.3% of the services revenue came from mobile data, a hefty increase from 35.6% just a year ago.

Revenue from fixed services improved by S$15 million, as the fibre customer base grew from 25,000 to 128,000. Entry of Over-The-Top content providers, such as Netflix could be a positive to M1 business. We could expect M1 to look at tie-ups with these OTT content providers to compete with StarHub’s and SingTel’s comprehensive home bundled services.

Foolish summary

As of yesterday close at $2.51, M1 is trading at 13 times price-to-earnings ratio. It delivers a dividend yield of 6.1%.

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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, Wilson Ong, doesn’t own shares in any companies mentioned.