M1 Q1 2010 net profit down 6% at S$39.3mln

Increase in handsets and advertising costs reduced company's profit despite 25.9% rise in revenue.

M1 reported 1Q10 operating revenue of S$249.0m (+33.6% yoy) and net profit of S$39.3m (-6.0% yoy). Revenue was 25.9% higher than our estimate of S$197.8m while net profit matched our estimate of S$39.3m.

Revenue rose sharply mainly because handset sales rose by 384.9% to S$67.4m. We felt that this was due to the purchase of smartphones by customers. Mobile telecommunications services revenue edged up by 2.2% to S$143.3m due to an increase in customer base, according to a report in Phillip Securities Research.

International call services revenue was higher by 1.3% to S$32.4m due to higher international traffic. Fixed network services revenue increased by 1,866.7% to S$5.9m because of the acquisition of Qala, an internet services provider.

Operating expenses increased by 41.6% to S$200.1m mainly because handset costs rose by 80.9% to S$130.0m. Furthermore, advertising and promotion expenses were 36.4% higher at S$5.4m.

Despite higher revenue, net profit declined in 1Q10 as 1Q09 benefitted from an adjustment to the reduction in corporate tax. Excluding the tax adjustment, net profit for 1Q10 increased by 8.0%.

M1 mentioned that its post-paid market share remained unchanged in 1Q10 at 26.5% when compared to 4Q09. Moreover, its pre-paid market share rose from 24.9% in 4Q09 to 25.2% in 1Q10. The number of post-paid and pre-paid customers rose by 2.3% and 2.0% from 4Q09 to 933,000 and 863,000 in 1Q10 respectively. We felt that this was due to more advertising and promotion as well as greater discounts offered by M1.

M1 expects the earnings for FY2010F to be higher than FY2009. This is a change from its earlier assessment in 4Q09 when it anticipated earnings for FY2010F to be comparable to FY2009. It looks forward to the launch of the Next Generation National Broadband Network (NGNBN) that will enable it to acquire new broadband customers. Furthermore, it intends to offer Pay TV by working on a revenue sharing model with content providers.