M1's results were in line. The stronger take-up of tiered data plans was positive,  although  effective  ARPU  accretion  was  still  capped  by roaming  revenue  weakness.  We  expect  higher  SAC  to  crimp  4Q13 EBITDA margins. We maintain our forecast and NEUTRAL rating on the stock, as well as our SGD3.25 FV (9% WACC).  M1 remains our top telco pick on relatively cheaper valuations vs its local peers.   

In  line.  M1's 9M13  core  earnings  made  up  74%/75%  of  our/consensus estimates.  3Q13's  service  revenue  growth  of  5.4%  brought  cumulative service revenue growth to 6.1%, in line with our expectations. The lower handset  and  advertising  &  promotion  (A&P)  expenses  led  to  decent EBITDA and earnings growth of 6.4% and 9.7% respectively YTD.     

EBITDA  margin  held  up  but  should  fall  in  4Q13.  This  will  be  due  to the  launch  of  the  iPhone  5s/5c  and  the  Samsung  Note  3  in  late September.  In  fact,  subscriber  acquisition  cost  (SAC)  fell  2%  q-o-q,  as customers held back their purchases in anticipation of the launch.  

Decent  demand  for  Mi Box .  M1  disclosed  that  slightly  <70%  of  the Android  set-top  boxes  (launched  in  3Q13)  sold  were  bundled  with  its fibre  offering.  It hopes  to  qualify  for  content cross-carriage by  mid-2014 when the number of pay-TV subscribers hits the 10,000 eligibility mark.  

Roaming weakness puts pressure on APRU despite higher take-up of  tiered  plans.  The  percentage  of  post-paid  customers  on  its  tiered data plans widened to 32% from 27.5% in 2Q13 (3Q12: 4%). While M1 said  it  continued  to  witness  a  good  ARPU  uplift  (+10%  on  3G  ARPU) with  subscribers  "tiering  up",  roaming  revenue  pressure  had, nonetheless, capped effective ARPU accretion.    

Maintain NEUTRAL, SGD3.25 FV. There is no change to our forecast, with  management  reaffirming its profit guidance of "moderate  growth" for  the  full  year.  Management  said  the  recent  penalty  imposed  by  the Infocomm  Development  Authority  of  Singapore  (IDA)  of  SGD1.5m  for network disruption earlier this year has been factored into its guidance. M1's capex should remain elevated in the December  quarter  (YTD: SGD79m), with tail-end spending on network enhancements.

Source: OSK