M1's prepaid revenue growth slipped 9-10%

Blame it on new SIM regulations.

According to Nomura, service revenue growth was at 2% y-y but down 1% q-q to SGD204mn. EBITDA was up 3% q-q and y-y to SGD82mn, with 40% margin. The cost of sales was down 33% due to lower SACs. NPAT was up 5-6% to SGD43mn.

Wireless revenue growth was at 5% y-y and flattish q-q. But within this, prepaid was a drag, down 9-10% (sub losses in light of changes in regulations on new SIM registrations, and weak ARPUs due to lower usage and top-up bonuses), but post-paid revenue was up 2-7%, reflecting the benefits of data tiering (54% of the company’s subs are on tiered plans, and 16% exceeding data bundles).

Here's more from Nomura:

M1 now has 90k NBN subs, or 8% of its post-paid base. But ARPU in this segment remains under pressure, down another 4% to SGD42 (the impact of some promotions).

Total NBN revenue contribution is around SGD11mn, we estimate, or 5% of M1’s service revenue. Its wholesale cost of fixed (predominately NBN access payments) was SGD8mn in the quarter; hence, it is a profitable segment now.

Management has maintained its guidance of “moderate profit growth” and SGD130mn in capex. It expects to launch VoLTE soon and LTE-A later this year (higher ARPU potential).

In light of this, along with the ongoing initiatives by telcos to continue to reprice data, M1 gaining broadband (residential and SME) and pay-TV subs bode well for the earnings and cash outlook, in our view. Its current net debt-to-EBITDA post last year's special dividends will be around 0.7x, we estimate, which is within its target range.