• 9M14 NPAT met 79% of FY
• Keeps moderate earnings growth
• Mobile subs drop a concern

3Q14 results within forecast

M1 Ltd reported its 3Q14 results last evening, with revenue inching up 3.5% YoY (+4.4% QoQ) to S$250.2m, aided by higher handset sales (launch of the new Apple iPhone 6 and 6+ was on 19 Sep); this also led to acquisition cost jumping 38% QoQ to S$369/post-paid subscriber. Nevertheless, net profit still managed to climb a credible 12.8% YoY (+1.4% QoQ) to S$44.5m, as EBITDA grew 8.9% YoY (+1.4% QoQ) to S$84.4m. 9M14 revenue was almost flat (+0.1%) at S$730.0m, meeting 71% of our full-year forecast, while net profit rose 9.7% to S$131.2m, or about 79% of our FY14 estimate, which we deem to be largely in line (this as expenses are likely to increase in 4Q14 due to year-end promotions; management has also guided for seasonally higher acquisition cost).

Keeps moderate earnings growth outlook

Going forward, management says it can continue to achieve moderate earnings growth (within the single-digit range), driven by the stronger data usage. M1 revealed that it has introduced new 4G smartphone plans with larger data bundles to better meet customers’ data usage requirement, but we note that these plans generally come with a higher monthly subscription. Separately, we note that M1’s total subscriber base has fallen 5% QoQ to below the 2m mark – this due to the 11.6% QoQ fall in pre-paid customers. On the fixed services side, M1 will focus on delivering better user experience and value, though it notes that competition is likely to remain keen. The pace of fiber acquisition is flattening out at +4.3% QoQ (was +4.4% in 2Q14, +5.9% in 1Q14), although fiber ARPU has improved to S$45/month in 3Q14, versus S$41.9 in 2Q14. Lastly, it has maintained its S$130m capex guidance due to ongoing upgrades to its network to LTE-Advanced.

Maintain HOLD with S$3.37 fair value

With 9M14 results coming within expectations, we opt to keep our estimates unchanged. Our DCF-based fair value also remains at S$3.37. Maintain HOLD on M1.

Source: OCBC Research - 17 Oct 2014