Small buy position for M1

Despite M1 having a bad Third Quarter results, 穷小子 bought M1 with a small position. Yes, 穷小子 did mentioned that he will not touch unless M1 hits $2 or after fourth telco announcements. But.. But.. It is too irresistible for not having a small bite to average down the overall price. Based on few points below.

• Based on today closing price, it gives a return yield of 7.42%. Assuming if the profits drops by 20%, and provided if the payout policy doesn't change, the yield will be somewhere around 5.9% . Still acceptable.
• Temasek Holdings had deemed 550K of shares at $2.101 few days ago. Temasek's deemed interests arises to 21.04% from 20.98%, via aggregation of the deemed interests held by KCL and DBSH. This boost the company's confident too.
• The volume hits 12,064,500 immediately the next trading day after the news announced. Something may be brewing.
• Pinned hope on fourth telco does not realised.

Two are facts , Two are non-facts (Pray)

M1 Third Quarter 2016 Results

M1 share price plunged 5.15% today, a $0.12 drop, to $2.21 today. This is much expected from the poor 3Q16 results released yesterday.
穷小子 mentioned in the previous post that M1 is having a juicy dividend yield of 6.38%, but because of fourth telco is approaching, patience prevails, and still waiting at the sidelines. Take a quick look on the 3Q2016 results.

Key Financial Highlights

Operating Revenue
$277.6m to $249.1m, -10.3%

Cost of sales for 9 months
$380.9m to $294.6m, -22.7%

Net Profit after tax
$44.9m to $34.4m, -23.4%

Cash & Cash equivalents, -62.9%

Net debt. 20.5%

Net debt/EBITDA, 24.8%

EPS, -12.0%

All these financial leverage are statistically bad.

Enough of the current statistic facts, let's see the good side of it.
As we all have known, majority of Singapore's consumers are bounded by the traditional 2 years contracts. Hence, the customer base is one of the most important factors to estimate the future, which at least how 穷小子 think.

Key Performance

Mobile Customer base

Mobile Market Share

Fixed services Customer base

Well, at least its 2 main business pillars', mobile and fixed services, base are increasing, at least at a slow pace.

Conclusion
Based on today closed price, the yield is about 6.9%, but of course, pretty much expecting a heavy cut to the dividends. Cut by how much is the big question for a dividend stock.
The management outlook are estimating a decline in FY2016 net profit after tax to be around the year-to-date range.
Assuming there will be a drop of 16% in EPS for FY2016, and the payout policy remains at 80%, we may be having a dividend of 12.8 cents for the next FY.

穷小子 is expecting few bad news to happen which can really hurt M1's share price deeply.
- News of fourth telco
- FY2016 results
- Cut in dividend
- Finally the completion of fourth telco (depending)

Hence not intending to average down in the near future. The first step which 穷小子 will be taking would be either wait for the price to hit at least $2.00 (psychological level), or after the fourth telco decision announced. Depends on whichever earlier.

Lastly, bear in mind that the worst fearful concern is that, there is still no confirmation about a fourth telco yet, there is not even a first step made by the fourth telco, but M1 profits is already dropped hard. Imagine what can this fourth telco do more hurting if it realised.

P.S. 穷小子 is not spreading fear here. M1 is about 10.9% of his total portfolio now.