M1: 3Q11 results slightly below expectations (OCBC)

Slightly softer-than-expected 3Q11 results. M1 Ltd reported 3Q11 revenue easing 0.4% YoY and 0.2% QoQ at S$244.8m, or around 4.0% shy of our forecast; this as subscribers may be holding back in anticipation of the new iPhone launch. While net profit climbed 4.1% YoY to S$41.0m, it was down 4.0% QoQ and was also 4.6% short of our forecast. EBITDA also saw a muted rise of 0.1% YoY and QoQ to S$79.3m, while margin was relatively flat at 42.1% versus 42.0% in 2Q11 (43.5% in 3Q10). For 9M11, revenue gained 4.2% to S$747.8m, meeting 73.1% of our full-year forecast, while net profit rose 5.7% to S$126.4m, or around 76.7% of FY11 estimate.

Good interest for iPhone 4S likely. M1 added some 41k new subscribers in 3Q; but it was driven by pre-paid segment with +34k new subs. Its postpaid segment only added 7k new subs; but we believe that consumers may be holding back in anticipation of the new iPhone. According to management, the interest for the 4S has been "good", but it notes that actual purchases may just number in the thousands, driven by upgrade from existing customers on the older iPhone 3G or 3GS. While post-paid acquisition cost for the quarter tumbled 4.4% QoQ and 21.2% YoY, M1 expects it to rise again in 4Q due to both the iPhone 4S take-up and year-end promotions. Meanwhile, M1 revealed that it has 16k NBN fiber customers as of end-Sep, with nearly 45% added in the quarter alone; and as with our earlier report, this is primarily driven by its aggressive promotion of its 100Mbps plan.

Maintains FY11 guidance. M1 continues to guide for earnings growth in 2011, buoyed by continued customer additions and increasing mobile data usage; it has also kept its S$100m capex guidance, with S$10m set aside for its own OpCo (Operating Company). M1 believes that having its own OpCo will help to improve response time and lower operating expenses for both its corporate and residential fixed network customers; although it only expects to reap the benefits in 2012. M1 adds that it will continue to maintain its 80% dividend payout ratio; but notes that the conditions for making another special dividend this year are not optimistic in view of the global and local macro-economic outlook.

Maintain BUY. Given that 9M11 results were still largely in line with our expectations, we are leaving our FY11 estimates unchanged. We continue to like M1 for its defensive earnings and attractive dividend yield. Maintain BUY with an unchanged DCF-based fair value of S$2.79.