M1's  9M14  results  met  expectations.  Strong  prepaid  data  growth coupled  with  more  postpaid  sus  exceeding  their  data  allowances propped  up  double-digit  YoY  growth  in  3Q14  EBITDA  and  core earnings.  While  SAC  may  see  a  further  rise  in  4Q14, M1's accounting policy  on the  iPhone  should  see its EBITDA  margin  outperforming  its peers'.  Remain  BUY,  raising  DCF-based  TP  to  SGD4.40  (vs  SGD4.20), suggesting 27.9% upside, after rolling forward our valuation to FY16.  

In line.  M1's 9M14 results were within expectations, at  77% and 76% of our and consensus estimates respectively.  The main takeaways were:  i) the  surge  in  handset  sales  sequentially  from  the  launch  of  the  iPhone 6/6+,  ii) a rising 22% of  postpaid subs exceeding their data allowances,and iii) the seasonal upswing in capex.  

Other key  highlights.  M1  has enjoyed  strong  prepaid  data  growth with 38%  of prepaid subs  now  on smartphones (86% on postpaid).  Together with  the  aggressive  top-up  promotions,  prepaid  ARPU  spiked  by  14% QoQ, offsetting the weakness in roaming revenue and the Government's clampdown on SIM ownership.  It  expects  fibre  broadband ARPU  to rise further  (3Q14:  +7%  QoQ),  which  suggests  strong  demand  for  the promotional  1Gbps  fibre  plan  that  is  priced  very  competitively  in  the market (see Figure 5).  

SAC may  pick up further  in 4Q14.  Following two consecutive quartersof  contraction,  M1's  subscriber  acquisition  cost  (SAC)  rose  38%  QoQ (+13.2%  YoY), which incorporated a half-month impact from the launch of the iPhone 6/6+. We expect SAC to increase further in 4Q14 with the iPhone  6/6+  taking  on  the  recently-launched  Samsung  Galaxy  Note  4. Nonetheless,  we  expect  the  impact  on  M1's  EBITDA  margin  to  be cushioned by the fair value accounting adopted on the iPhone.   

Forecasts. We introduce our FY16 estimates but maintain our FY13-14F numbers.  Key earnings risks are:  i) stronger-than-expected competition and ii) higher-than-expected SAC. 

Maintain BUY.  We roll forward our valuation to FY16,  which results in our  DCF-based  TP  rising  to  SGD4.40  (WACC:  7%,  TG:  1.5%)  from SGD4.20. This presents an upside potential of 27.9%.

Source: OSK-DMG