MobileOne: Hold (Phillip Securities, 17 July)
For 2Q FY2009, M1 reported operating revenue of S$190.5m (-7.2% yoy), profit before tax of S$45.0m (-11.4% year-on-year) and net profit of S$37.1m (-9.7% yoy). Telecommunication services registered 7.7% decrease in revenue to S$141.6m. Postpaid revenue fell by 8.5% to S$124.0m while prepaid revenue decreased by 2.2% to S$17.5m. Moreover, international call services posted 13.7% drop to S$32.8m while handset sales rose by 12.2% to S$15.6m. Fixed network services was a new segment that contributed revenue of S$0.5m. Operating expenses also decreased to S$144.1m (-5.6% yoy) due to lower staff costs, facilities expenses amd provisions for doubtful debts. M1 benefitted from the Jobs Credit Scheme, paid lower bonus and hired fewer staff. Therefore, net profit decreased due mainly to lower revenue despite lower operating expenses. We keep our hold recommendation on the stock because M1 has a limited focus on the domestic market and does not have Pay TV services. As M1's net profit of S$37.1m only came in 3.6% below our expectation of S$38.5m, we maintain the target price at S$1.67 based on our valuation using the free cash flow to firm model.

MobileOne: Buy (OCBC Research, 17 July)
M1's 2Q09 revenue was down 7.2% year-on-year (yoy) to S$190.5m, or around 24.5% of our full-year estimate; net profit dropped 9.7% yoy to S$37.1m, or around 25.8% of our FY09 forecast. For the first half, revenue slipped 7.9% to S$376.9m, while net profit eased 0.3% to S$78.9m, meeting 48.4% and 54.9% of our FY09 numbers respectively. M1 has also declared an interim dividend of S$0.062/share, or 70% of its 1H09 earnings, unchanged from last year. On the business front, M1 managed to regain lost ground following slightly more aggressive promotions in both the pre- and post-paid segments; overall subscribers rose by 50,000 vs. 12,000 decline in 1Q09. As the economic outlook is still uncertain, we continue to like M1 for its defensive and strong free cash flow-generating business, and dividend paying ability (80% payout ratio). We also see M1 as one of the biggest beneficiaries of the NBN initiative. As such, we maintain a Buy call at a fair value of S$2.12.)

MobileOne: Sell (DMG, 17 July)
M1's 2Q09 earnings were below expectations. Net profit fell 9.7% to S$37.1m on the back of 7.2% decline in revenue. The fall in earnings would have been more severe if not for lower taxes, as gleaned from the 11.4% year-on-year (yoy) fall in pre-tax profit. EBITDA margin grew 1.2ppt yoy to 44.8%, as operations last year was marred by intense competition in the wake of full MNP. Subscription and retention costs surged 13% and 29% qtr-on-qtr (qoq) respectively, as M1 stepped up promotional activities in 2Q09. Management did not reveal much about its NBN strategy, choosing to stick to a few general comments: 1) It is all geared up to participate in the NBN once OpCo's Nucleus Connect is ready (Apr 2010); 2) Target markets include both retail and commercial; 3) It will not overbid for content, and may partner with shareholders like SPH; 4) It will introduce unique services which may go beyond bundling. The market’s generally expecting the NBN to benefit M1 the most, but we think otherwise. Our view is further cemented with M1's former head honcho joining rival StarHub. Moreover, yields at 7.9% still pales in comparison to our top pick StarHub. Price target remains at $1.52, but stock downgraded to Sell (from Neutral) given lacklustre prospects and recent price rise.

MobileOne: Buy (Kim Eng, 17 July)
Although year-on-year yoy) comparisons are still negative, the critical postpaid mobile revenue stream reversed a five-quarter decline in 2Q09. M1 added 50,000 mobile subscribers in 2Q09 (including 7,000 postpaid subs), reversing 1Q09's 11,000 erosion. As expected, margins improved from a year ago, offsetting the yoy decline in revenue. EBITDA margin on service revenue rose from 43.6% in 2Q08 to 44.7% in 2Q09. This was driven by more customers taking on mid to high-end mobile plans under the Take 3 program as well as higher mobile data usage on its HSDPA network. Net profit fell 12% to $37.1m qtr-on-qtr only because there was a $5.5m tax credit in 1Q09. Adjusted for that, net profit rose 1.5% qoq.
Although subscriber acquisition and retention costs of $301 were higher QoQ, it is still down from $346 a year ago. M1 is guiding for similar levels of spending in future quarters but our forecasts already assume higher customer spending. Further, we do not expect SingTel’s recent iPhone 3GS launch to drive a big jump in defensive industry spending, unlike 1H08, as there are now more smartphone alternatives available. All the telcos will be racing to make sure they get all the high value subscribers they can before NBN comes online. Unlike StarHub and SingTel, which can bundle fixed broadband and Pay TV, M1 is likely to focus on mobile broadband, a growth area due to the profileration of smartphones and netbooks. This could raise costs but we believe M1 has already factored this into its guidance of earnings stability for 2009. Management reiterated its outlook of a stable 2009 in terms of earnings, as well as a commitment to paying 80% of earnings in dividends, which will still yield a very attractive 8% at current levels. (Interim dividend was maintained at 6.2 cents.)
Mainan Buy with target price of $2.01.