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M1 Ltd’s Latest Earnings: Dividends Cut by Over 25%

Yesterday, M1 Ltd  (SGX: B2F) reported its 2017 second quarter earnings. The reporting period was for 1 April 2017 to 30 June 2017.

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 service 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 rundown on some of M1’s latest financial figures:

1. Second quarter revenue rose 4.7% year-on-year to $252 million.

2. M1’s service revenue came in at $205 million for the reporting quarter, slightly above last year’s $204 million.

3. Net profit contracted 20.8% year-on-year to $32.5 million.

4. Earnings per share (EPS) was 3.5 cents, down 20.8% from the 4.4 cents recorded in the second quarter last year.

5. Cash flow from operations came in at $60.0 million for 2017’s second quarter. Capital expenditure was $27.1 million. This gave M1 positive free cash flow of over $32.9 million for the reporting quarter, down from the free cash flow of $50 million recorded during the same period last year.

6. As of 30 June 2017, M1 had $6.1 million in cash and equivalents and $426.6 million in debt. This gave M1 a net debt position of about $420.5 million. This is higher compared to 2016’s second quarter when M1 had $8.2 million in cash and equivalents and $335 million in debt for a net debt position of $326.8 million.

In all, M1’s service revenue remained stagnant. But both profit and free cash flow declined while net debt increased. The board of directors proposed an interim dividend of 5.2 cents per share, down from the interim dividend of 7 cents paid out last year.

Operational highlights

M1’s mobile service revenue saw a 2% year-on-year dip to $160 million. The telco’s postpaid customer base fell by 4,000 to 1.267 million when compared to the previous quarter, but increased by 45,000 compared to the second quarter of 2016. Meanwhile, the prepaid customer base increased by 2,000 to 777,000 on a sequential basis. The second quarter of 2016 saw M1 achieve a prepaid customer base of 758,000.

Despite enjoying year-on-year growth in terms of subscriber count, M1’s mobile services revenue fell because of lower average revenues per user. Postpaid’s ARPU fell by 6.8% year-on-year while the prepaid side saw its ARPU fall by 14.6%.

M1’s overall market share (including postpaid and prepaid) was 24.2% as of April 2017. M1 saw its churn rate (rate of customers leaving) rise to 1.7%, a sharp increase from the 0.9% seen in the same quarter a year ago.

The decline in mobile services revenue was offset by a strong rise in fixed services revenue. The segment saw a 19.2% increase in revenue to $31 million compared to a year ago. The higher revenue was helped along by a 31,000 year-on-year increase in the company’s fibre customer base. ARPU, though, fell by 5.3% year-on-year. Elsewhere, international call services revenue continued its fall, declining 8.6% in the second quarter to $14 million.

Karen Kooi, M1’s chief executive, added her thoughts on M1’s future in the earnings release:

“M1 is well positioned to capture new opportunities presented by the digital economy. We have been investing in NB-IoT1 network and digital solutions, and expanded our offerings to include managed infrastructure services, cyber security, business solutions and analytics. This would enable us to better serve our customers and generate new revenue streams for future growth”

M1 expects to see a decline in net profit after tax for 2017.

As of Tuesday’s closing share price of $2.10, M1 traded at a price-to-earnings ratio of 15.2 and has a trailing dividend yield of around 5.3%.

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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.