M1 Ltd’s Latest Earnings: Running to Stand Still

M1 Ltd  (SGX: B2F) reported its second-quarter earnings last Friday. The reporting period was for 1 April 2016 to 30 June 2016.

M1 is the smallest player within Singapore’s telecommunications industry, sitting in third place behind Starhub Ltd  (SGX: CC3) and Singapore Telecommunications Limited  (SGX: Z74). M1’s business has four segments, namely, mobile services, fixed services, international 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 from its last quarter here.

Financial highlights

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

  1. Second-quarter revenue fell by 13.2% year-on-year to $240 million. Handset sales fell by more than 50% during this period, driving sales lower.
  2. But, services revenue was unchanged at $204 million for the reporting quarter.
  3. Given the lower top-line, M1’s net profit fell 7.5% year-on-year to $41 million.
  4. Consequently, earnings per share (EPS) was 4.4 cents, down 6.6% from the 4.7 cents recorded in the second-quarter last year.
  5. Cash flow from operations came in at $84.8 million for the reporting quarter. Capital expenditure was $34.5 million. This gave M1 positive free cash flow of over $50 million for the quarter. This was an improvement from the $31 million recorded during the same period last year ($71.1 million in cash flow from operations and $40 million in capex).
  6. As of 31 June 2016, M1 had $8.2 million in cash and equivalents and $335 million in debt. This gave M1 a net debt position of about $327 million. This is higher compared to the second quarter of 2015, when M1 had a net-debt position of $311.2 million.

In all, M1’s services revenue remains stagnant. There was an improvement in free cash flow this quarter, which is good to see. Investors might want to note that M1 has refinanced a good slug of its debt. The telco had refinanced a term loan worth $250 million in May 2016 at an effective interest rate of 2.65%. This is higher than the 1.59% interest rate that M1 had prior to the refinancing.

Last but not least, the board of directors had proposed an interim dividend of 7 cents per share. This is unchanged from a year ago.

Operational highlights

M1’s mobile service revenue saw a 2.4% year-on-year dip.

The telco’s post-paid customer base increased by 14,000 on a sequential basis and 53,000 on a year-on-year basis. Meanwhile, its pre-paid customer base increased by 24,000 from the previous sequential quarter and 44,000 from a year ago.

Average revenue per user (ARPU) for post-paid customers fell by 3.5% year-on-year for the quarter while the pre-paid side saw its ARPU fall by 17.4%.

M1’s overall market share (including post-paid and pre-paid) was 23.5% as of April 2016, a slight increase from the 23.2% seen in the second-quarter of 2015. M1 also managed to keep its churn rate (rate of customers leaving) at 0.9%, a touch lower than the 1.0% seen in the same quarter a year ago.

Elsewhere, the fixed services segment saw a 30% increase in revenue for the second-quarter of 2016. The rise in sales was helped along by an increase of 31,000 in its fibre customer base from the same period in the previous year. ARPU, though, fell by 2.6%.

International call services revenue continued its fall. In the second-quarter of 2016, the segment’s revenue clocked a decline of close to 12%.

Karen Kooi, M1’s chief executive, shared some of her thoughts on M1’s business in the earnings release:

“We are investing in new technologies and capabilities, and building up a portfolio of digital solutions to enhance our service propositions and cater to changing customer needs. While expenditure is incurred upfront, meaningful contribution will only be upon achieving scale in service adoption over future years.”

M1 expects a single digit decline in net profit for 2016.

As of last Friday’s closing price of $2.78 for its shares, M1 traded at a price-to-earnings ratio of 15 and has a trailing dividend yield of around 5.5%.

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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.