M1: 3Q11 should be in line with expectations. (OCBC)

3Q11 results should be fairly in-line. M1 Ltd will kick off the earnings season for the telcos when it releases its 3Q11 results on 17 Oct (after market close). As we do not see any special events taking place in the Sep quarter this year, unlike the launch of the iPhone 4G in late Jul last year, we believe results should come in fairly in line with our forecasts. For the top-line, we are expecting it to show increases of 3.8% YoY and 3.9% QoQ to S$255m; and net profit should improve by a sharper 9.4% YoY (+0.7% QoQ) as M1 probably did not have to incur higher handset subsidies this time compared to 3Q10.

New iPhone 4S could be a wildcard. Apple will be launching its new iPhone 4S on 28 Oct here via all the three telcos, and this could potentially throw our forecasts off. While market watchers were initially disappointed that it was not iPhone 5 and hence only expecting muted demand for the iPhone 4S, the pre-orders in the US have been overwhelming . So far, the three local telcos have yet to offer any pre-ordering for the iPhone 4S; however, it could still happen closer to the launch date. But based on anecdotal evidence, current iPhone 4 users are likely to wait for iPhone 5 which could be announced as early as Apr next year.

Aggressive NBN promotion. Another notable development in the recent Sep quarter was M1's aggressive promotion of its NBN (fiber broadband) services during the recent COMEX IT show, where M1's 100Mbps package was going for just S$39/month (with a two-year contract) as compared to its usual S$59 monthly subscription (also with a two-year contract). While M1 was reportedly "very delighted" by the response for promotion , we also understand that there is still a fairly long queue to actually hook up these new subscribers, with some waiting as long as six weeks to get connected. But this is outside of M1's control as the physical hook-up is done by OpenNet, where the infrastructure operator is facing a big backlog of installations. As such, any additional revenue boost would come in 4Q11; but probably with much thinner margins due to the aggressive promotion.

Maintain BUY. For now, we are maintaining our estimates for both FY11 and FY12 until we get better clarity from management after the analyst conference call. We also keep our BUY rating and S$2.79 DCF-based fair value.