M1, is it the One?

M1, is it the One?

Brief Background:
M1 Limited (M1) is one of the biggest telecommunication services providers in Singapore, it also engages in international call services and broadband services, retail sales of telecommunication equipment and accessories, customer services and investment holding. The company and its subsidiaries operate in Singapore in one business segment, but there are three components that contribute to the operating revenue:
1)Mobile communication services
2)International call services
3)Fixed services

Related Events and News:
M1 released their 2016 Full Yearly Results at 24 Jan, 2017. See attached report.

18th Mar, ‘3 largest M1 shareholders reviewing their stakes’, check it out here: http://www.straitstimes.com/business/compa…

17th Mar, ‘M1 and listed shareholders call for trading halt’, refer to the news here: http://www.businesstimes.com.sg/stocks/m1-…

17th Mar, ‘M1’s chief financial officer resigns’, see the full news at: http://www.businesstimes.com.sg/companies-…

Performance Summary:
In 2016, M1 had a declining revenue and profit compared to the performance in the last year. M1 maintain a stable balance sheet and improvement has been seen in the amount of cash. However, when compared to its peer companies, M1 held the least favourable cash position and paid the lowest dividend. Given the situation that Singtel earn absolute advantage in both market share and profit margin, and under the pressure of the fourth entrant in telco industry, M1 chose to build a partnership with Starhub in mobile network business. However, after news that three biggest shareholder of M1 plan to sell their share portion and the Chief financial officer (CFO) resigned came out in March 17, share price of M1 surged 8% and ended up with a trading halt because of the possible ‘mysterious buyer’.

Financial Highlights:
1. Operating performance:
a) Yearly comparison: M1 maintained stable amount of revenue during the recent five years, but when compared to the performance in 2015, the group observed 8.3% decline in revenue, 16.1% decline in net income and lower profit margin.

b) Quarterly result: M1’s 4Q revenue experienced 27% drop, which is due to higher customer acquisition cost, and this result also reflects customer’s disappointment in traditional telecommunication services.

c) Operating components: M1 had a shrinkage of $27.7m in their mobile telecommunications services, which is their main business that occupied 57.7% of the total revenue, but they earned more from the fixed services. From the chart, it is not difficult to find that the proportion of fixed services has overtaken the international call services and become the second largest source of revenue.

2. Financial and cash flow position:
Compared to the performance in 2015, M1 had larger amount of assets, with a 5.6% increase to $1,146.6 million in 2016, driven by rising amount of Property, plant and equipment (PP&E). The group had less inventories, less receivables and less borrowings, thus gained better position by improving its liquidity and solvency. M1 had both higher amount of operating cash flow and free cash flow at the end of the 2016 financial year. The amount of net cash generated from operating increase 40%, but increase in free cash flow is only 10%, which is due to $64m investing outflow on purchase of spectrum rights.




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