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M1 Full Year Results 2010: Paying out more than free cashflow

M1 Limited today announced its 4th quarter results and full year results.

At the same time it announced a juicy 7.7 + 3.5 cents dividend. in total the dividend is 17 cents making the dividend yield for the year 7% based on a share price of $2.50.

M1 is the darling stock

A lot of investors like M1. They seem to think they are the underdog Telco. They think it is the best managed with the best structure. I know because I used to think the same way.

Under the previous CEO, they really got a great structure going. And if you survey your friends they will tell you they are a very competent Telco operation wise. I think they got really good network and telco plans.

Singtel is the one that gives the lowest dividends and probably the big bad wolf. Starhub is the one which drew the most criticism because its dividends is paid out more than net profit and its debt is many times more than equity.

Here is my opinion after reviewing the M1 full year results: Singtel still has the best strategy going forward. Starhub has a more conservative operation structure than M1.

For all M1 figures can go to this Google Spreadsheet and the initial coverage of this stock can be found in this analysis.

Disclosure: I own shares in both Singtel and Starhub and used to own M1

Greater Revenue but also greater cost

Revenue have finally broke out of the shitty times in 2009 where both M1 and Starhub was unable to secure the iPhone distributorship. This year, consumers have a lot of smartphone choices. Other than iPhone they have Windows Phone 7 and Android phones to choose from. Consumers also took to the more expensive data plans.

As such M1’s ARPU was positively impacted. But if you think profit should be good think again. Net income for Q3 and Q4 was at 39 and 37 mil respectively. This is in comparison to 34 and 37 mil respectively in 2009.

Even though they sell more handsets those handset expense is also higher. Starhub faced the same situation as well.



Profit and Cashflow Margins have been going down, illustrating the competitiveness of the industry.

Free Cashflow not able to cover dividends

Its great that M1 pays a special dividend and M1 makes it a point to mention it in their presentation slides. But the question is whether it is sustainable.

In 2009, Free Cashflow – Dividend payout was – 16 mil.

In 2010, Free Cashflow – Dividend payout was – 53 mil.

I could imagine the situation worse in 2011 as they are paying out this special dividend. This is an increase of 25% in dividend payout.

In summary, dividend payout is pushing cashflow. We hope that in 2011 all the good things about pay tv and new initiatives really boost cashflow otherwise this dividend payout is not sustainable.

More Debt Taken

Starhub was lambasted for its heavy debts. Well if that is the case M1 can join in being chided for their debt structure.

For cashflow purposes and to pay out dividends, debt has to increase and it went from 250 mil in 2009 to 312 mil in 2010.

This brings debt to equity to 1. I still think its ok since telco generate cashflow well and there is no danger here.

EV/EBITDA is no longer cheap

Taking Enterprise value divided by Operating Cashflow we have a figure of 13 times.

This is much higher than the other 2 telcos which is less than 10.

My opinion is that a lot of the good news of NBN, increase in population and pay TV have been factor into the share price at this price.


Sometimes I evaluate whether I made a right decision to sell M1 away or not. I think I regretted my decision, but I think the market is being irrational here.

Would I get vested at $2.50? Probably not. I still think the case for Pay TV and NBN does not constitute the offset in increase competition and narrowing of operating margins.

Telcos need more revenue sources that are higher margins. Singapore telcos are not great in this aspect. The only one that is not that lame is Singtel.

Comparing a yield without special dividend of 5.4% vs Singtel’s yield of 4.6% with 60% dividend payout, I would likely gone for Singtel. What do you guys think?


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Thursday 7th of April 2011


Forgot to leave the links for the fibre broadband plans for comparison.


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