M1 – DMG
Still noises on the line
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). Teh 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.