M1 Ltd’s Latest Earnings: A Sputtering Start To 2017

Yesterday, M1 Ltd  (SGX: B2F) reported its 2017 first quarter earnings.

As a brief 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 services, and handset sales; the first three are collectively known as services revenue.

You can catch the results from M1’s previous quarter here.

Financial highlights

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

1. Overall revenue in the first quarter rose 1.2% year-on-year to $260.7 million on the back of higher handset and fixed services revenue.

2. Services revenue came in at $202 million for the first quarter, relatively unchanged from last year’s first quarter service revenue of $203 million.

3. Net profit fell 14.6% year-on-year to $36.3 million.

4. Earnings per share (EPS) was 3.9 cents in the reporting quarter, down 14.1% from the 4.5 cents recorded in the first quarter of 2016.

5. Cash flow from operations came in at $48.2 million for 2017’s first quarter while capital expenditure came in at $49.6 million. This gave M1 negative free cash flow of $1.4 million for the quarter, down from the positive $64.1 million seen a year ago.

6. As of 31 March 2017, M1 had $7.5 million in cash and equivalents and $383.7 million in debt. This gave M1 a net debt position of around $376 million, down from the net debt position of $300 million seen a year ago.

In all, M1’s services revenue declined slightly compared to a year ago. Profit was down 14.6% while free cash flow turned negative. The company’s balance sheet also weakened compared to a year ago.

Operational highlights

M1’s mobile services revenue saw a 3.1% year-on-year dip to $158 million. The telco’s post-paid customer base and pre-paid customer base increased by 63,000 (to 1.271 million) and 41,000 (to 775,000), respectively, from a year ago. This was offset by year-on-year declines of 4.8% and 17.1% in the average revenue per user (ARPU) for post-paid customers and pre-paid customers.

M1’s overall mobile market share (including post-paid and pre-paid customers) was stable at 23.8% as of January 2017. The company also managed to keep its churn rate (the rate of customers leaving) at 1%, unchanged from the same quarter a year ago.

Elsewhere, the fixed services segment saw a 20% year-on-year revenue increase to $30 million. The segment was helped along by a year-on-year increase of 32,000 to 168,000 in its fibre customer base. This offset a 7.6% decline in the ARPU.

International call services revenue continued to fall, recording a 12.5% decline to $14 million in the first quarter of 2017.

In another development, M1 secured 2 x 10 MHz of 700 MHz spectrum and 2 x 5 MHz of 900 MHz spectrum in the latest spectrum auction. This will come at a cost of $208 million. Investors will have to check back to see how M1 will finance this expense.

Karen Kooi, M1’s Chief Executive, talked about new developments at M1 in the earnings release:

“We secured 2 x 10 MHz of 700 MHz and 2 x 5 MHz of 900 MHz spectrum at the recent auction. This will enable us to enhance our network coverage, deploy innovative technologies to augment our network capacity, and deliver superior customer experience cost effectively through optimal use of spectrum.

We are introducing improved cloud-based service offerings to drive growth in fixed services, and developing new Internet of Things and Smart Nation capabilities and solutions. These efforts will further strengthen M1’s position as the telecommunications provider of choice.”

As of M1’s closing share price of $2.14 yesterday, the company trades at a price-to-earnings ratio of 13.8 and has a trailing dividend yield of around 6%.

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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.