M1 Ltd’s Latest Earnings: Profit Plunges While Final Dividend Is Cut By 29%

Telecommunications services provider M1 Ltd  (SGX: B2F) reported its earnings for the quarter and year ended 31 December 2016 yesterday evening.

As a quick background, M1 is the smallest player within Singapore’s telco 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 call services, and handset sales; the first three are collectively known as service revenue.

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

Financial highlights

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

  1. Overall revenue in the fourth quarter rose 1.9% year-on-year to $313.9 million. The decline was mainly driven by a 14% increase in handset sales. For the entire 2016, M1’s revenue was $1.06 billion, down 8.3% from 2015.
  2. Services revenue came in at $201 million for the fourth quarter, down almost 4% from last year’s $209 million. For 2016, service revenue was $806 million, or down around 2%.
  3. Net profit for the reporting quarter plunged 26.6% year-on-year to $32 million. Profit for the full year decreased by 16% to $149.9 million.
  4. Consequently, diluted earnings per share (EPS) for the fourth quarter was 3.4 cents, down 26.5% from the 4.6 cents recorded a year ago. M1 recorded a diluted EPS of 16.1 cents for 2016, down 15.6% from 2015.
  5. For the reporting quarter, cash flow from operations came in at $50.3 million while capital expenditure came in at $41.4 million. This gave M1 positive free cash flow of $8.9 million, up from the negative $10.6 million seen in the fourth quarter of 2015 ($31.4 million in cashflow from operations and $42 million in capex). For the whole of 2016, free cash flow was $129.6 million (including a $64.1 million payment for spectrum rights), up from $105.6 million in 2015.
  6. As of 31 December 2016, M1 has $11 million in cash and equivalents and $401 million in debt. This gives M1 a net debt position of $390 million, a decline compared to end-2015, when it had a net-debt position of around $344 million.

In sum, M1’s service revenue has fallen for the second quarter in a row. The telco’s bottom-line has also taken a big hit. The company also took on more debt to finance the purchase of spectrum rights. Free cash flow, though, showed some improvement.

M1’s board of directors proposed a final dividend of 5.9 cents per share, bringing the company’s total dividend payout to 12.9 cents per share for 2016. The final dividend had declined by 29% compared to 2015’s final dividend of 8.3 cents. On a full-year basis, M1’s dividend in 2016 is down by around 16%.

Operational highlights and a future outlook

M1’s quarterly mobile service revenue saw a 6% year-on-year decline to $158 million. On a sequential basis, M1’s post-paid customer base increased by 15,000 to 1.247 million while its pre-paid customer base increased by 10,000 to 772,000. There were larger year-on-year increases – the post-paid and pre-paid segments saw a 52,000 and 39,000 jump in subscriber numbers, respectively.

But, M1’s average revenue per user (ARPU) for its post-paid segment fell by 7.3% year-on-year while the pre-paid segment saw its ARPU fall by 17.9%. The lower ARPUs caused the aforementioned decline in M1’s mobile service revenue.

M1’s overall market share (including post-paid and pre-paid) rose to 23.7%, as of October 2016. M1’s churn rate (rate of customers leaving) was 1.2% for the fourth quarter of 2016, up from 1.1% in the same quarter the year before.

Elsewhere, the fixed services segment saw an 8% year-on year increase in revenue to $27 million for the reporting quarter. The higher revenue was helped along by a year-on-year and sequential increase of 32,000 and 8,000 in its fibre customer base. M1 ended 2016 with 160,000 fibre customers. But, ARPU for the fourth quarter in the segment fell 9.3% compared to a year ago.

International call services revenue in the reporting quarter was also down – this time by 3.2%. The segment brought in $15.5 million in revenue for the reporting quarter.

Karen Kooi, M1’s chief executive, had the following comments on M1’s business:

“We continue to invest and innovate to enhance our service offerings to better serve our customers, as well as capitalise on new opportunities in the digital economy such as solutions for smart nation and IoT [internet of things] services.

These initiatives, together with the foundation that we have laid over the years, will enable us to create and deliver long-term value to our stakeholders.”

Management also said that “market conditions are expected to remain challenging in the current year.”

M1’s shares closed trading at a price of $2.17 yesterday. This gives M1 a price to earnings ratio of 13.5 and has a dividend yield of around 5.9%.

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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.