090219 - Phillip - Mobileone Limited

Phillip Securities Research (MICA (P) 146/01/2009)

Singapore • Telecommunications Sector • Results

MobileOne Limited

Recommendation:

FY2008 results

HOLD Previous call: HOLD at S$1.96 on 28 July 2008.

Price Previous close Fair value Share price return

S$1.58 S$1.67 5.7%

Share Statistics Shares Market Cap. Trailing PER Forward PER P/BV 52-week Price Range 52-week PER Range Listing Bourse

Major Shareholder

895m S$1,414m 9.4x 9.5x 6.3x S$1.23S$2.14 7.3x-12.1x SGX-Main Board 1. TM International (29.66%) 2. Keppel Telecom (19.96%) 3. SPH (13.91%)

19 February 2009 Net profit declined in FY2008. For FY2008, M1 reported operating revenue of S$800.6m (-0.3% yoy), profit before tax of S$185.0m (-4.9% yoy) and net profit of S$150.1m (-12.6% yoy). There are three main revenue segments: mobile telecommunication services, international call services and handset sales. Mobile telecommunication services registered 0.2% increase in revenue to S$601.4m as the customer base increased by 10,000 and 96,000 from last quarter and last year respectively to 1,631,000. Postpaid revenue fell by 1.6% to S$529.8m while prepaid revenue increased 16.2% to S$71.6m. Moreover, international call services posted 7.9% rise to S$137.1m while handset sales fell by 18.4 percent to S$62.1m. The introduction of full mobile number portability from 13 June 2008 resulted in increases in both its acquisition and retention costs. This caused the operating expenses to rise by 1.1% to S$608.9m. However, other revenue and finance costs dropped by 65.5% and 20% to S$1.0m and S$7.6m respectively. As a result, profit before tax fell to S$185.0m. Net profit decreased by 12.6% to S$150.1m in FY2008 mainly due to the absence of tax adjustments, which occurred in FY2007. Exhibit 1: Quarterly revenue and net profit

Exhibit 2: Full year revenue and net profit

250

Price Chart

200

1.6

150

S$m

S$m

2.1

100 50

Revenue

3Q 08

1Q 08

3Q 07

0 1Q 07

2/18/2009

12/18/2008

10/18/2008

8/18/2008

6/18/2008

4/18/2008

2/18/2008

1.1

Net profit

900 800 700 600 500 400 300 200 100 0 FY2006

FY2007

Revenue

FY2008

Net profit

Company Profile MobileOne Ltd is one of the three licensed cellular operators in Singapore.

Analyst Alfred Low  +65-6531 1793 FAX +65-6536 4435

[email protected] Web www.phillipresearch.com

Source: Company, Phillip Securities Research

Profit margin. Net profit margin increased from 17.5% in 3Q FY2008 to 18.8% in 4Q FY2008 mainly due to lower staff costs. Based on a year-on-year comparison, it fell from 21.4% in FY2007 to 18.7% in FY2008 because of higher retention and acquisition costs.

MobileOne Limited

19 February 2009 Exhibit 3: Quarterly net profit margin

Exhibit 4: Full year net profit margin

30.0 25.0 15.0

%

%

20.0 10.0 5.0

3Q 08

1Q 08

3Q 07

1Q 07

0.0

22.0 21.5 21.0 20.5 20.0 19.5 19.0 18.5 18.0 17.5 17.0 FY2006 FY2007 FY2008

Net profit margin

Net profit margin

Source: Company, Phillip Securities Research

Below our forecasts.

Revenue Net profit EPS (S$)

FY2008 (S$m) Our forecasts (S$m) Variance (%) 800.6 837.3 (4.4) 150.1 166.1 (9.6) 0.168 0.186 (9.7)

The actual revenue and profit were 4.4% and 9.6 percent below our forecasts respectively. This could be attributed to the introduction of mobile number portability that resulted in higher costs. Outlook for FY2009. M1 expects 2009 to be a challenging year due to the global financial crisis. It has submitted a bid as the Operating Company to build and operate the active infrastructure of the Next Generation National Broadband Network. The announcement of the winning bid is expected to be in 1Q 2009. Despite the crisis and barring unforeseen circumstances, it expects operations to remain stable. Moreover, its dividend policy for 2009 is to pay 80% of net profit after tax as dividend. Chief Executive Officer (CEO) stepped down. In January 2009, M1 announced that its CEO, Neil Montefiore, would step down from 1 February 2009. The present Chief Financial Officer (CFO), Karen Kooi Lee Wah, would be the Acting CEO in additional to her duties as CFO while M1 searched for a new CEO. We believe that it would take three to four months before a new CEO could be appointed. Maintain Hold with fair value cut from S$2.16 to S$1.67. Due to the worse-thanexpected results and the challenging outlook, we have reduced our earnings estimates for 2009 and 2010. Therefore, based on our valuation using the free cash flow to firm model, the target price is cut from S$2.16 to S$1.67. M1 remains a hold due to its limited focus on the domestic market. The dividend yield of M1 is 8.2%. Exhibit 1: Financial Summary 4Q07 4Q08 Revenue (S$ m) 207 195 EBITDA (S$ m) 77 79 EBIT (S$ m) 46 47 Net Profit (S$ m) 38 37 EPS (S$) 0.042 0.041 DPS (S$) 0.083 0.072 Net Profit Margin (%) 18.3 18.8 Source: Company, Phillip Securities Research

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(%) (5.9) 3.0 1.1 (3.4) (2.4) (13.3) 0.5

2008 801 317 193 150 0.168 0.120 18.8

2009F 791 314 193 149 0.166 0.120 18.8

2010F 780 312 190 146 0.163 0.120 18.7

MobileOne Limited

19 February 2009

Financials Profit & Loss statement (S$ m)

2008

2009F

2010F

2011F

Mobile International Sale of handset Total revenue Other income Cost of sales Other operating expenses EBITDA Depreciation and amortization EBIT Finance costs Profit before tax and exceptional items Exceptional items Profit before tax Tax Profit for the year

601 137 62 801 1 (301) (184) 317 (124) 193 (8) 185 0 185 (35) 150

597 123 71 791 5 (300) (182) 314 (121) 193 (10) 183 0 183 (34) 149

592 116 72 780 5 (298) (174) 312 (122) 190 (10) 180 0 180 (34) 146

593 114 73 780 5 (300) (170) 314 (123) 191 (10) 181 00 181 (34) 147

EPS (S$) BVPS (S$) DPS (S$)

0.168 0.249 0.130

0.166 0.283 0.130

0.163 0.315 0.130

0.164 0.348 0.130

Growth & margins (%) Sales growth EBITDA growth EBIT growth Net income growth EPS growth EBITDA margin EBIT margin

2008 (0.3) (1.3) (5.5) (4.8) (9.3) 39.5 24.1

2009F (1.2) (0.9) 0.1 (1.3) (1.0) 39.7 24.4

2010F (1.4) (0.4) (1.3) (1.4) (1.7) 40.1 24.4

2011F 0.0 0.7 0.5 0.5 0.7 40.3 24.5

Cash flow statement (S$ m) Profit before tax Adjustments Operating profit before working capital Changes in inventories Changes in trade debtors Changes in creditors Changes in related parties and others Payment of tax Net cash from operating activities Net cash from investing activities Net cash from financing activities Net change in cash and cash equivalents Cash at beginning of the year Cash at end of the year

2008 185 132 317 0 12 (17) (10) (47) 255 (97) (163)

2009F 183 87 269 (3) (26) 109 0 0 348 (13) (176)

2010F 180 88 268 (1) (3) 34 0 0 298 (13) (60)

2011F 181 89 270 (1) (3) (22) 0 0 244 (14) (118)

(5) 23 18

159 18 177

225 177 402

112 402 514

Source: Company, Phillip Securities Research

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Balance sheet (S$ m)

2008

2009F

2010F

2011F

18 9 69 15 692 1 804 0 181 50 250 100 580 223 804

177 12 96 15 585 1 885 0 289 50 193 100 632 253 885

402 12 99 15 476 1 1,005 0 323 50 250 100 723 282 1,005

514 13 102 15 368 1 1,012 0 301 50 250 100 700 312 1,012

Key Ratios ROE (%) ROA (%) Net debt/equity (%) Interest cover - EBIT (X)

2008 70.3 18.3 1.0 25.4

2009F 62.4 17.6 0.1 18.8

2010F 54.6 15.5 (0.5) 18.6

2011F 49.6 14.6 (0.8) 18.7

Valuation P/E basic (X) P/B (X) Dividend yield (%)

2008 9.4 6.3 8.2

2009F 9.5 5.6 8.2

2010F 9.7 5.0 8.2

2011F 9.6 4.5 8.2

Cash Inventory Receivables Other current assets Net fixed assets and intangibles Other non-current assets Total assets Short term borrowings Payables Other current liabilities Long term borrowings Other non-current liabilities Total liabilities Total shareholders equity Total liabilities and equity

MobileOne Limited

19 February 2009

Ratings History MobileOne Limited Closing price (S$)

Rating

Date

HOLD HOLD HOLD HOLD HOLD HOLD

19 February 2009 28 July 2008 22 April 2008 29 January 2008 23 October 2007 25 July 2007

BUY HOLD SELL Phillip Research Stock Selection Systems

1.58 1.96 1.91 1.88 2.06 2.15

Fair value (S$)

1.67 2.16 2.16 2.16 2.38 2.38

Remarks

Results Results Results Results Results Results

>15% upside from the current price Trade within ± 15% from the current price >15% downside from the current price

We do not base our recommendations entirely on the above quantitative return bands. We consider qualitative factors like (but not limited to) a stock's risk reward profile, market sentiment, recent rate of share price appreciation, presence or absence of stock price catalysts, and speculative undertones surrounding the stock, before making our final recommendation

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