M1 profits hit by new plans

Sim only are cheaper by 20-70% as telco price war escalates.

M1's new, cheaper plans for its SIM-only and mySIM services could seriously hurt its earnings and revenue, DBS Equity Research said.

Their new SIM-only plans are 20-70% cheaper compared to their previous SIM-only plans.

Meanwhile, their new mySIM plans will allow re-subscribing users to have the same data allowances but with lower voice and SMS allocation.

The mySIM plans with smartphone also offer "better bargains" for users with higher data allocation and similar upfront price for smartphones.

Given the ability to choose between older legacy heavy plans and cheaper data plans, M1's subscribers will tend to minimise the cost of the monthly rentals.

This will lead to subscribers opting packages with lower average revenue per user (ARPU), which will lead to ARPU dilution.

"This will likely weigh on M1's revenues, which are ~70% made up of mobile," said DBS analyst Sachin Mittal.

He added that in addition to revenue pressure, M1 is seeing escalating costs as the company looks to expand its headcount.

The carrier is also seeing higher project-related expenses. This has pushed down M1’s EBITDA in recent quarters. which would likely be further exacerbated by a sharp rise in depreciation and amortisation costs as M1 invests in network assets and spectrum. M1 is expected to pay S$188m for 700MHz spectrum when it is available which would push down earnings further, resulting in lower dividends.

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