I have previously discussed the 3 Telcos in Singapore and the pressures of declining revenues in the face of stiffer competition and mobile market saturation. The release of the Q3 results by M1, seems to add weight to the concerns surrounding our local telcos.
M1 (SGX:B2F), released their Q3 results, with an interesting headline: "Net profit fell by 23.4%, y-o-y, to $34.4 million". It reported an increase in new sign-up customers this year but lower handset sales dented its third-quarter numbers - likely to exclude the figures related to the iPhone7 launch.
Althought total service revenue - which comprises turnover from mobile telecommunications, fixed and international call service - dipped 3.6 per cent to $197.1 million, M1 continued to grow its customer base by 6.7 per cent over the year.
M1 noted that the global telecommunication sector continues to face challenges, resulting in a fall in traditional revenues, associated with data usage. "While customers consume more data with over-the-top applications, growth in data revenue is likely to be moderated by competitively priced data offerings." In my opinion, this concern will likely be exacerbated by the potential entrant of a 4th Telco.
Based on the current outlook and barring unforeseen circumstances, M1 said its full-year net profit after tax will likely show a decline of around the same level as that seen so far this year.
Net profit for the first nine months was down 12.6 per cent to $117.9 million over the same period a year ago. Earnings per share for the third quarter fell 22.8 per cent to 3.7 cents from 4.8 cents a year ago. Net asset value per share fell to 39.9 cents from 44.1 cents at the end of last December.
* Free cash flow refers to net cash provided by operating activities less current year capital expenditure
M1 has been consistent with its dividend payouts over the years, returning an average of 5-7%. It has also been able to grow its operating revenue over the years. It has enjoyed a relatively healthy mobile subscriber base of ~23%, a core component of its business operating revenue. Its debt to equity ratio is reasonable for the nature of its business, consistent free cash flow enables it to return value to its shareholders.
However, it is worthwhile to note that in a very competitive (potential 4th Telco) and saturated telco market like Singapore, innovation and diversification will be key to improving its bottom line. With the recent downward price movements, I am looking to add M1 to my portfolio when the price is right and when things are clearer with regards to a potential 4th telco entrant.
| Year | Yield | Amount | Ex Date | Pay Date | Particulars |
| 2016 | 6.89% | SGD 0.07 | 26/07/2016 | 04/08/2016 | SGD 0.07 ONE-TIER TAX |
| SGD 0.083 | 12/04/2016 | 21/04/2016 | SGD 0.083 ONE-TIER TAX | ||
| 2015 | 8.51% | SGD 0.07 | 31/07/2015 | 18/08/2015 | SGD 0.07 ONE-TIER TAX |
| SGD 0.119 | 17/04/2015 | 30/04/2015 | SGD 0.119 ONE-TIER TAX | ||
| 2014 | 6.35% | SGD 0.07 | 06/08/2014 | 15/08/2014 | SGD 0.07 ONE-TIER TAX |
| SGD 0.071 | 11/04/2014 | 25/04/2014 | SGD 0.071 ONE-TIER TAX | ||
| 2013 | 6.67% | SGD 0.068 | 31/07/2013 | 15/08/2013 | SGD 0.068 ONE-TIER TAX |
| SGD 0.017 | 11/04/2013 | 25/04/2013 | SGD 0.017 ONE-TIER TAX | ||
| SGD 0.063 | 11/04/2013 | 25/04/2013 | SGD 0.063 ONE-TIER TAX | ||
| 2012 | 6.53% | SGD 0.066 | 20/07/2012 | 14/08/2012 | SGD 0.066 ONE-TIER TAX |
| SGD 0.079 | 11/04/2012 | 26/04/2012 | SGD 0.079 ONE-TIER TAX | ||
| 2011 | 8.02% | SGD 0.066 | 27/07/2011 | 11/08/2011 | SGD 0.066 ONE-TIER TAX |
| SGD 0.077 | 11/04/2011 | 26/04/2011 | SGD 0.077 ONE-TIER TAX | ||
| SGD 0.035 | 11/04/2011 | 26/04/2011 | SGD 0.035 ONE-TIER TAX | ||
| 2010 | 6.08% | SGD 0.063 | 28/07/2010 | 11/08/2010 | SGD 0.063 ONE-TIER TAX |
| SGD 0.072 | 14/04/2010 | 27/04/2010 | SGD 0.072 ONE-TIER TAX | ||
| 2009 | 6.04% | SGD 0.062 | 29/07/2009 | 12/08/2009 | SGD 0.062 ONE-TIER TAX |
| SGD 0.072 | 09/04/2009 | 27/04/2009 | SGD 0.072 ONE-TIER TAX | ||
| 2008 | 3.74% | SGD 0.083 | 10/04/2008 | 25/04/2008 | SGD 0.083 ONE-TIER TAX |
| 2007 | 76.69% | - | 10/12/2007 | 27/12/2007 | APPROXIMATELY SGD 0.046 |
| SGD 0.025 | 13/09/2007 | 27/09/2007 | SGD 0.025 ONE-TIER TAX | ||
| SGD 1.6026 | 10/05/2007 | 25/05/2007 | PER CANCEL SH SGD 1.6026 ONE-TIER TAX | ||
| - | 10/05/2007 | 25/05/2007 | PER CANCEL SH SGD 0.6174 | ||
| SGD 0.075 | 10/04/2007 | 27/04/2007 | SGD 0.075 ONE-TIER TAX | ||
| 2006 | 11.76% | SGD 0.058 | 01/09/2006 | 21/09/2006 | SGD 0.058 ONE-TIER TAX |
| SGD 0.081 | 03/04/2006 | 26/04/2006 | SGD 0.081 ONE-TIER TAX | ||
| SGD 0.122 | 03/04/2006 | 26/04/2006 | SGD 0.122 ONE-TIER TAX | ||
| 2005 | 4.86% | SGD 0.05 | 02/09/2005 | 22/09/2005 | SGD 0.05 ONE-TIER TAX |
| SGD 0.058 | 06/04/2005 | 26/04/2005 | SGD 0.058 ONE-TIER TAX | ||
| 2004 | 13.69% | SGD 0.2 | 14/12/2004 | 28/12/2004 | CAPREDCANCEL/SH SGD 0.2 ONE-TIER TAX |
| - | 14/12/2004 | 28/12/2004 | CAPREDCANCEL/SH SGD 0.225 | ||
| SGD 0.049 | 03/09/2004 | 23/09/2004 | SGD 0.049 ONE-TIER TAX | ||
| SGD 0.055 | 31/03/2004 | 21/04/2004 | SGD 0.055 ONE-TIER TAX | ||
| 2003 | 5.05% | SGD 0.039 | 05/09/2003 | 25/09/2003 | SGD 0.039 ONE-TIER TAX |
| SGD 0.0585 | 21/04/2003 | 12/05/2003 | SGD 0.0585 TAX EXEMPT | ||
| SGD 0.0145 | 21/04/2003 | 12/05/2003 | SGD 0.0145 ONE-TIER TAX |
Debt and Cashflow
The level of cash and debt is a rough gauge of how strong or weak a company’s balance sheet is. In general, when debt is really high, a company runs the risk of having to eliminate or reduce its dividends, especially when its business runs into difficulties.
For M1 (2015), the company has S$105.7 million in free cashflow and S$343.8 million in net borrowing. A Net Debt/Equity ratio of 0.8. A healthy '*free cashflow' figure would indicate the ability of a company to return value to shareholders, in the form of dividends.
Summary
M1 has been consistent with its dividend payouts over the years, returning an average of 5-7%. It has also been able to grow its operating revenue over the years. It has enjoyed a relatively healthy mobile subscriber base of ~23%, a core component of its business operating revenue. Its debt to equity ratio is reasonable for the nature of its business, consistent free cash flow enables it to return value to its shareholders.
However, it is worthwhile to note that in a very competitive (potential 4th Telco) and saturated telco market like Singapore, innovation and diversification will be key to improving its bottom line. With the recent downward price movements, I am looking to add M1 to my portfolio when the price is right and when things are clearer with regards to a potential 4th telco entrant.
