M1 net profit tumbled by 17.8% YoY

With a squeezed pocket, does M1 still have sufficient fund to cover higher roll-out cost for a nationwide 4G smartphones?

M1 Ltd reported a softer-than-expected set of 2Q12 results yesterday. Revenue of S$232.2m was down 5.3% YoY.

Management explained that the lower revenue was due to lower handset sales.

Due to a change in sales mix, with nearly 70% of its post-paid customers adopting an Android phone, which subsidies are expensed upfront, net profit tumbled 17.8% YoY and 12.7% QoQ to S$35.2m.

Meanwhile, M1’s 1H12 revenue fell 1.6% to S$494.7m, making up 45.0% of our FY12 forecast; while net profit slipped 11.5% to S$75.5m.

Nevertheless, M1’s interim dividend remains at S$0.066/share, unchanged from last year.

Going forward, M1 expects capex to be around S$120m, versus its earlier S$110-130m guidance. Nomura however notes that management has not reiterated its “stable performance at both top and bottom-line” guidance.

Instead, M1 guided that the strong interest in new high-end smartphones seen in 2Q will contribute to revenue growth over a two- year period.

It also expects handset subsidies expensed upfront to have an immediate impact on profitability, but believes that margins will recover over the 2-year contract period.

Meanwhile, M1 is looking to be the first telco in Singapore to have a nation-wide 4G smartphone and dongle coverage by end-3Q. Nomura however cautioned that the adoption of this new technology could take up to 2 years to reach an optimal level, the higher roll-out cost could depress near-term margins.