How did the SFRS impact M1's earnings?

Analysts think it got an advantage from the new standards, unlike its peers.

Maybank Kim Eng noted that with the implementation of the Singapore Financial Reporting Standard (SFRS) 15, Singapore telco businesses will experience its material impact on the timing of revenue recognition because they are significantly equipment contract-based.

M1 had a bad start to 2018 as its profits fell 11.5% to $132.5m. However, according to Maybank KE analyst Luis Hilado, the new standards have had less of an impact on the company than its peers, because it had been employing a similar standard for its iPhone accounting.

“Management guided for a $13m one-time, cash-tax impact from the change, but otherwise, operating cashflows remain similar,” he said. He also noted that the net impact is “that instead of substantial handset subsidies under prior accounting, the handset business is now shown as near break-even.”

Hilado explained that the SFRS is supposed to hit service revenues and average revenue per user (ARPU) as revenue is shifted to equipment revenue from service revenues.

“For Singapore telcos with calendar 4Q being the typical period of re-contracting with new handset launches, this means it will optically be a period of high equipment sales and low service revenues. Operating cashflows are not materially impacted as long as billing and collection procedures remain at current practice,” he added.

For RHB Research, the results were distorted by the restatement of its financial numbers based on the new accounting standard. This is especially “with the absence of pre-SFRS 15 comparables for the quarter, impeding a more meaningful assessment of the underlying impact. The effect is seen to be incremental for M1, which already practises fair value accounting for the iPhone bundled contracts,” the team added.

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