Comparison between 3 Telcos and M1 Earning Updates April 25, 2017
M1 Earnings Update
It is earnings season again and we have M1 leading the pack, releasing their first quarter earnings early last week. M1’s business is segregated into four segments, namely mobile services, fixed services, international call services, and handset sales; the first three are collectively known as Services revenue.
Based on their first quarter results, we know that:
- Mobile Telecommunication Services dropped 3.5% Y-O-Y (S157.6 mil Vs $163.4 mil);
- Mobile customer base increased 5.4% Y-O-Y (1,941,000 to 2,046,000);
- Mobile data contributed 55.1% of service revenue;
- Average revenue per unit (ARPU) declined Y-O-Y in all segments;
- Net profit declined 14.6% to S$36.3 million, mainly due to higher cost of sales, interest expense and depreciation expense;
- EPS declined 14.2% from 4.5 cents in 1Q16 to 3.9 cents.
From the results above, investors should be wary that M1 is getting an increased mobile customer base yet a decline in mobile services revenue, a telltale sign that profitability margin is on the decline. Whether this trend of margins being squeezed is only specific to M1, investors ought to take a closer look at the overall telecommunication industry.
Telecommunication Industry
By now, most of us should be aware that TPG, an Australia company, has won its bid to become Singapore’s 4th Telecommunication Company. What is surprising as well is Circles.Life, who sign an agreement to use M1 infrastructure launched its own postpaid plan. Circles.Life is targeting 4-6% while TPG is aiming for 5-6% market share in a short period to bring their EBITDA to a positive region. Since the announcement of the 4th telco in September 2016, our 3 telcos have underperformed the STI index.
Source: POEMS 2.0 (Red-STI Index, Green-Singtel, Blue-Starhub, Yellow-M1)
With the advancement of smartphones, mobile revenue contributed a significant portion of the service revenue. Intensified competition and price war have also led to “smaller cost, larger data”. While this has been good news for consumers, it isn’t positive for the telco sector.
Comparsion of Singtel, Starhub and M1
Traditionally, investors have long been attracted to telco for their defensive nature, predictable income and yet attractive dividend yield.
| Singtel | Starhub | M1 | |
| Dividend (Trailing Twelve Months) | $0.175 | $0.200 | $0.129 |
| Last Done Price (21 Apr 2017) | $3.73 | $2.78 | $2.04 |
| Dividend Yield | 4.69% | 7.19% (5.76%*) | 6.32% |
| Market Share (As of 31 Dec 2016 AR) | 48.6% | 27.4% | 23.8% |
| Price to Earning Ratio** | 15.567 | 14.112 | 13.224 |
| Price to Book Ratio** | 2.234 | 24.644 | 4.324 |
* 5.76% calculated based on Starhub latest dividend guidance of 4 cents per quarter
** Ratio extracted from SGX Stockfacts, based on closing price of 21 April 2017
Investors putting money for dividend yield should be aware that dividends are paid out of company profits. Therefore, dividend yield calculated on historical earnings is never an indication of future earnings. Possible lower future profit is going to make investors’ yield significantly lower than what they are expecting.
Knowing that competition has increased and margin is most likely going to stay tight, investors taking a stake in the telecommunication sector can look at their earnings diversification. Companies that have diversified income stream may see lesser impact on their earnings due to heightened competition in Singapore.
If you wish to know more information about stocks, you can speak to your designated Trading Representatives or a Dealer at a Phillip Investor Centre near you.
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About the author
Mr Michael Tay
Equity Dealer
Mr. Michael Tay currently provides dealing services to over 17,000 trading accounts and is part of the POEMS Dealing, the core in-house dealing department of Phillip Securities Pte Ltd. Michael is a strong believer of value investing, focusing on companies with strong fundamentals and good dividend policy. Apart from his dealing role, he often provides training seminars on Fundamental Analysis topics to further enrich his clients’ financial knowledge. Michael holds a Bachelor Degree of Finance from the SIM University (UniSIM) and was awarded the CFA Singapore Silver Award in 2012.
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