Divested on StarHub as their Management skills are not as strong as before.

Divested

I've divested StarHub before their 3Q16 results announcement after considering various points and thought it'll be a good time to do so before their announcement.

Weak outlook on Mobile

Mobile segment outlook is very weak, and especially so for StarHub and M1. This is affirmed by their 3Q announcement vis a vis Singtel's announcement.

Pricing pressure from the impending 4th Telco arrival has took a toll on M1 and StarHub.

Defensive Mode

StarHub's management has been on a defensive mode with regards to their earnings call.

They attributed their fall in Mobile earnings to 

1. IDD and International Roaming calls (as usual) 
2. Not pricing pressure from their data upsize point of view. 

An analyst even questioned on their need for such aggressive move on the data front, given that the fall in voice revenue is larger than the data upside.

Management's response was that their move was not aggressive. They even attempted to assured investors by saying that what they're seeing is that consumers are not downgrading their plans but instead, increasing their subscription to the Plus 3 option due to increase in data consumption.

Now, these are all nice to hear. But it's essentially useless if their revenue does not show otherwise.

Singtel, meanwhile, has managed to stabilised their Mobile revenue despite falling voice revenue with strong data growth. They've put their money where their mouth is.

Weak PayTV vs Singtel

StarHub's and Singtel's PayTV subscribers are lowering quarter on quarter. However, the similarity stops here.

Singtel has managed to increase their revenue while StarHub's PayTV revenue is falling together with its smaller subscribers' base.

In response to analysts' question, StarHub is again on the defensive mode saying

1. Working hard on content
2. StarHub Go is there
3. Netflix and other illegal options are there all along

Again, these are nice to hear until your revenue shows otherwise.

Meanwhile, Singtel has somehow managed to increase their PayTV revenue even when excluding BPL subscriptions. 

Also, I remember them saying this on their previous earning calls in response to analysts

1. Cutting the cord in other countries will not be seen on the same scale here
2. StarHub has local contents that prevents consumers from cutting cords (as the OTT options do not have significant asian content)
3. Netflix via VPN is already available long before, together with illegal setup box, and StarHub has been unfazed.
4. StarHub Go will address the OTT options

Yet now, look at their PayTV segment. They must be eating their words.

Meanwhile, Singtel:

1. Partnered with Netflix
2. Has VIU, CAST to countered the OTT options
3. BPL is really helping their revenue (although their profitability on BPL remains questionable).

Hubbing (their Trump Card) is weakening as well

Even their Hubbing households (which Management has been trumpeting forever, is falling for the second or third quarter).

No competitive advantage left

In summary, why i decided to divest before their 3Q announcement

1. Unable to stem the falling of their PayTV business (unlike Singtel)
2. Unable to manage their Mobile revenue fall (unlike Singtel)
3. Enterprise growth seemed to have stalled
4. Price points are not the cheapest (vs M1), yet not the most expensive (for investor's benefit).

When you're neither here nor there, and have no clear competitive advantage, I'm not comfortable being your long-term shareholder as I've no confidence in your management skills. 

For now, I'm still closely monitoring M1, and will divest if need be. At least now, they're the "cheapest" in the market.

Lacklustre M1 Q3 results

M1 released its Q3 result after trading hours today. I wasn't too pleased.

Q3 Y-O-Y
Net Profit up 0.8%
Diluted EPS up 0.7%

Q2 Y-O-Y
Net Profit up 1.0%
Diluted EPS up 0.5%

Q1 Y-O-Y
Net Profit up 6.6%
Diluted EPS up 5.0%

9M Y-O-Y
Net Profit up 2.8%
Diluted EPS up 2.3%

Q2 and Q3 results were disappointing, showing a clear trend of declining QoQ slow down in increment. Contrast Q1's profit of 6.6% increment with 1H of 3.8% and now 9M of 2.8%.

Service revenue (what I deemed as core, recurring revenue) dipped slightly from $207m to $205m QoQ. Although Handset sale surged, the cost of sales increased accordingly. It seems that sale of handset doesn't do much to the bottomline of telcos. Its good that the telcos are slowing moving away from handset subsidies (bad for consumers like us though).

While management guided moderate growth during Q1 and Q2, they've changed their tune and now forecast a low single digit growth for the financial year.

Dividend forecast
I remember attempting to forecast the dividend payout earlier this year.

Let's try that again:

	FY2014 actual	FY2015 forecast
EPS Cents	18.8	19.4
Growth	8%	3%
Scenario 1 (80% payout)
Regular payout/share(cents)	18.9	15.5
Dividend yield @$2.90		5.35%
Scenario 2 (85% payout)
Regular payout/share(cents)	18.9	16.49
Dividend yield @$2.90		5.69%
Scenario 3 (90% payout)
Regular payout/share(cents)	18.9	17.5
Dividend yield @$2.90		6.02%
Scenario 4 (95% payout)
Regular payout/share(cents)	18.9	18.43
Dividend yield @$2.90		6.36%

More intriguing 
What's more intriguing is how M1 managed to grow from 8% last year and fall to 2-3% this year.

While EBITDA margins is one of the highest at Q3 2015 (42.3%), profits have been sluggish.

Both postpaid and prepaid marketshared declined YOY. Other interesting statistics are that talktime minutes are on a 10% fall for postpaid and 3% fall in prepaid.

This fall in both international roaming and talktime doesn't seemed to be sufficiently negated by the growth of the data contribution (for all telcos).

I find it pertinent that the telcos maintain their mobile revenue by stimulating demand (more data usage) or adjusting tariffs.

Still holding on 
But life goes on. Dividends still get paid. Profits are still chugging along. I'll hold on for now :)

Just wished for a turnaround during their Q4 though. The iPhone 6s and 6s Plus should hopefully give a push :P

M1 Q2's result - not the best

M1 released its Q2 result after trading hours today.

Q2 Y-O-Y
Net Profit up 1.0%
Diluted EPS up 0.5%

Q1 Y-O-Y
Net Profit up 6.6%
Diluted EPS up 5.0%

1H Y-O-Y
Net Profit up 3.8%
Diluted EPS up 3.0%

Notice that Q2's result was a drag. It dragged the overall 1H 2015 profits to 3.8%. Contrast this with Q1's profit of 6.6% increment. 

I looked at its detailed financial statement and realised that QoQ revenue was stable ($294M vs $278M - drop largely due to lower handset sale, maybe iPhone & Samsung lull period). Margins however were compressed in Q2 due to higher cost of sales (likely to be handset sale).

The saving grace, however, is that Management guidance for FY2015's results is still "Moderate Growth" (mid to higher single digit). However, that's not to say that they can't miss that guidance. Who knows?

The next saving grace, is that interim dividend remained at 7 cents (no change). This could probably provide some support M1's share price.

Not overly concerned nor overly complacent with Q2's result. Still hoping that Q3 and Q4 would bring would turn the tides, especially with new handsets from Apple & Samsung in the later half of the year.

Liberty Wireless & M1 impact

M1 announced that it will grant Liberty Wireless access to its mobile network to offer services to postpaid customers. In essence, M1 is selling their spectrum to Liberty Wireless (who has no radio spectrum because only the 3 local telco has them) for the latter to resell to consumers.

How big this contract is currently still unknown. So I've no way to tell the impact of this arrangement to M1's financials. However, there are things we can know.

New revenue stream
By selling the spectrum to Liberty Wireless, M1 has diversified its revenue and even an recurring one as well. This is quite important to the company as mobile revenue takes up more than 80% of its service revenue and 60% of its operating revenue.

Its good to always diversify your revenue to protect your company from any adverse impact.

Cannibalisation
By allowing a new entrant into the market, this creates greater competition for M1. In fact, there will be a strain on the market share of M1's mobile customer.

Liberty Wireless has also said that its strategy will be focused on data centric plans. This suggests a potential roll out of higher data bundles with lower pricing. LW will be able to do this and maintain a decent margin because of its low capex requirement; it leases spectrum from M1 and has less costs on its P&L. There could be a repeat of what happened in the Fibre Broadband space where competition would likely drive ARPU down and this could adversely impact M1 given its high concentration on Mobile revenue.

How to fight back?
I've no privy to M1's management discussions, but I could try to piece the puzzle together. Recall that M1 recently announced its new product - mobile payment service?

One of the key note for this potentially successful product is that it will only work if its customers are using M1 data plan. This creates stickiness with M1.

Its like Apple. Apple always ensures that its products are closed and interconnected. Just like how iTunes are only available to Apple product users and not open source - thereby creating demand on both iTunes music sales and Apple iDevices sales.

Should M1's mobile payment service really becomes hit, they could really have a strong moat to lock its its customers and reduce their churn rate.

Is M1's 19 cent dividend sustainable? Part 2

Following my previous post here, let's attempt to go further down the road and see the impact of the 4th telco to M1.

	FY2014	FY2015	FY2016	FY2017	FY2018
	Actual	Just my guess		4th telco	Pressure
EPS (cents)	18.8	19.9	21.1	21.9	22.3
Growth	8%	6%	6%	4%	2%
Scenario 1 (80% payout)
Regular payout/share(cents)	18.9	15.9	16.2	17.5	17.8
Payout ratio	101%	80%
Dividend Yield (@ $3.20)		4.97%	5.07%	5.48%	5.58%
Scenario 2 (85% payout)
Regular payout/share(cents)	18.9	16.9	17.3	18.6	19.0
Payout ratio	101%	85%
Dividend Yield (@ $3.20)		5.28%	5.39%	5.82%	5.92%
Scenario 3 (90% payout)
Regular payout/share(cents)	18.9	17.9	18.3	19.7	20.1
Payout ratio	101%	90%
Dividend Yield (@ $3.20)		5.60%	5.71%	6.16%	6.27%
Scenario 4 (95% payout)
Regular payout/share(cents)	18.9	18.9	19.3	20.8	21.2
Payout ratio	101%	95%
Dividend Yield (@ $3.20)		5.90%	6.03%	6.50%	6.62%

Growth assumption

I've assumed FY2015 and 2016 growth to maintain at 6% mainly due to growth from their fixed lines (fibre plans).

Although the 4th Telco is expected to enter during 2017, I've expected there to be little to no significant change in the market share of the incumbent. After all, the incumbents would be trying their best to create customer stickiness in these few years.

However, I expect M1 to lower their prices to defend their market share in 2017. Let's just call it an early defence; hence a 4% growth in FY2017.

FY2018, although I really don't expect the new entrant to make significant impact yet, I've decided to be conservative and lowered M1's growth.

Dividends

To be very conservative, I've assumed that M1 pays no special dividends in the scenario above.

I've also assumed that management will scale down their payout ratio to create a buffer for the great war they've to fight in 2017/2018. However, I expect them to minimally maintain the absolute dividend per share amount, drawing reference to their past track record.

New revenue driver? (not factored in the growth above)

M1 has announced that it will be launching a handy payment service for small businesses (like push carts and small merchants) which is essentially M1's own version of a POS (Point-of-Sale) service.

Remember those clunky devices for credit card payments? Yes it is that!

Want to know why M1's version looks so much more appealing?

1. It is only the size of a deck of card. 
2. It doesn't require a telephone line. You just plug in the audio jack of any Android or iOS smart devices
3. It runs on M1's data plan instead of connecting to loonnngg wires.
4. Rental is one-tenth of the usual ($5.35/month).
5. No minimum transaction nor deposit required! (WOAH)

Is M1 going to disrupt the traditional POS system? I don't know. But this sure sound interesting. If I'm a business, I'm definitely checking this out.

MiBox
Seriously though, are they re-looking at this or not? This could be the next set up box that taps on the hype with HULU, NETFLIX and many more. They could very easily disrupt the current pay-TV scene.