M1 Ltd’s Latest Earnings: Lackluster Start to the Year

Telecommunications provider M1 Ltd  (SGX: B2F) reported its fiscal first-quarter earnings yesterday evening. The reporting period was for 1 January 2016 to 31 March 2016.

M1 is the smallest player within Singapore’s telecommunications industry, sitting in third-place behind second-placed Starhub Ltd  (SGX: CC3) and leader Singapore Telecommunications Limited  (SGX: Z74). M1’s business has four segments, namely, Mobile services, Fixed services, International Call services, and Handset sales; the first three are collectively known as Services revenue.

You can learn more about M1 in here and look at the results of its last quarter here.

Financial highlights

The following’s a quick rundown of M1’s latest financial figures:

  1. Overall revenue in the first-quarter fell by 12.6% year-on-year to $257.6 million. The decline was mainly driven by a 40% decrease in handset sales.
  2. Services revenue came in at $203 million for the first-quarter, relatively unchanged from last year’s $204 million.
  3. Net profit fell 7% year-on-year to $42.5 million.
  4. Subsequently, earnings per share (EPS) was 4.5 cents, down 6.5% from the 4.9 cents recorded in the first-quarter last year.
  5. Cash flow from operations came in at $102 million for 2016’s first-quarter while capital expenditures came in at $37.9 million. This gives M1 positive free cash flow of $64.1 million for the quarter, a significant improvement from the $33.6 million seen a year ago ($58.7 million in cash flow from operations and $25.1 million in capex).
  6. As of 31 March 2016, M1 had $11.6 million in cash and equivalents and $311.5 million in debt. This gave M1 a net debt position of $300 million, a lousier picture compared to the first-quarter of 2015, when it had a net-debt position of $236 million ($17.8 million in cash and equivalents and $253.8 million in debt.

In all, M1’s Services revenue had stayed at the same spot. There was an improvement in free cash flow this quarter, which is good to see. But, the balance sheet had showed an increase in debt. There is also one key item to watch in the coming quarter. My fellow Fool Wilson Ong had noted this previously:

“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.”

The aforementioned term loan makes up the lion’s share of M1’s outstanding borrowings. The refinancing of the debt may be worth watching for investors.

Operational highlights

M1’s Mobile services revenue saw a 2% year-on-year dip despite the post-paid and pre-paid customer bases having increased by 51,000 and 21,000, respectively, from a year ago. The main culprits are the 5.5% and 12.6% year-on-year declines seen in the average revenue per user (ARPU) for post-paid customers and pre-paid customers, respectively. M1 ended the reporting quarter with 1.208 million post-paid mobile customers and 734,000 pre-paid customers.

The telco’s overall market share (including post-paid and pre-paid) was stable at 23.3% as of January 2016. M1 also managed keep its churn rate for post-paid customers (rate of customers leaving) at 1%, unchanged from the same quarter a year ago.

Elsewhere, the Fixed services segment saw a 31.5% year-on-year  increase in revenue. The rise in sales was helped along by a 28,000 jump in its Fibre customer base to 136,000. The ARPU also rose by 3.5% from the previous year.

International call services revenue continued its fall, clocking a 16% decline in sales for the first-quarter compared to the same period in 2015.

Karen Kooi, M1’s chief executive, had some thoughts on the company’s future in the earnings release:

“M1 will continue to offer new and innovative products and services to build customer loyalty and attract new customers. We are also investing in new technologies that will complement our core business. This may be in early stage companies, for which benefits may only accrue in future years”

M1 has estimated that it will produce a “stable performance for the year 2016.”

Foolish summary

As of yesterday’s closing price of $2.48, M1 traded at a trailing price-to-earnings ratio of 13.3 and has a trailing dividend yield of 6.2%.

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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 doesn’t own shares in any companies mentioned.