The  acute  margin  pressure  persisted  in  the  Sept  quarter  as  expected  due  to  the full  quarter  impact  of  the  Android  handsets,  where  fair  value  accounting  is  not observed.  While  9M  cumulative  numbers were  still  behind  the  curve,  M1  expects revenue  and  earnings  to  improve  in  4QFY12.  We  have  retained  our  forecast,  fair value and recommendation, noting that forecast risk remains. NEUTRAL. 
 
Calling  for  a  better  4Q.  M1's 9MFY12  results  made  up  66%  and  68%  of  our  and consensus  estimates  respectively  (62%-65%  of  the  street/our  revenue  forecast).  The shortfall was mainly attributed to a further 3%-pt erosion in the EBITDA margin q-o-q, no thanks  to  the  full-quarter  impact  of  the  accounting  treatment  for  Android  handsets (differs  from  fair  value  accounting  applied  for  the  iPhone  where  some  revenue  is recognized upfront to offset the subsidy). We are keeping our forecast - in line with the renewed  guidance  at its  result  call  of  a better  final  quarter-  with  the  benefit  of  stronger revenue  traction  (Android  revenue  progressively  recognized  and  fair  value  accounting for the iPhone 5). While management is guiding for improved earnings, it also stated that subscriber acquisition cost (SAC) is expected to rise due to the introduction of the Phone 5. This would imply much stronger revenue growth momentum. 

Weak  roaming  revenue.  M1  said  it  was  affected  by  the  seasonally  weaker  roaming traffic for the quarter and the lower Malaysia'Singapore roaming tariffs implemented last year.  It  had  previously  expected  traffic  to  be  stimulated  by  the  lower  rates  (lowered  by 20% for voice) but this has yet to materialize. We gather from  the management that the split between inbound and outbound traffic has been fairly even. 

Some  improvement  for  NGN  provisioning.  M1  added  7k  fiber  broadband  customers to 44k in 2QFY12. While it saw  an improvement in the service-provisioning timeline for residential customers, M1 said this was still longer than the three days stipulated by the IDA.  For  commercial  premises,  the  provisioning  timeline  is  still  below  the  threshold conveyed and it is working closely with all stakeholders to reduce the waiting time.  

Seeing good LTE take-up - 43k subs on 4G in a matter of weeks. M1 is not able to monetize  the  premium  charged  for  4G  usage  (incremental  SGD10/mth  over  3G  plans) due  to  the  promotional  waiver  on  access.    Management  said  it  is  seeing  a  good  shift from big screen usage to smartphones.  

Capex  and  BPL.  M1  is  guiding  for  capex  to  remain  at  the  SGD120m  level  until  FY14, after  which  it  would  be  replaced  by  maintenance  capex.  On  the  Barclays  Premiership League (BPL) rights awarded non-exclusively to Singtel earlier, management reiterated its previous stance in not vying for premium content. 

Source: OSK