M1 – OSK DMG
Dialing Up Decent Numbers
M1’s results were in line. The stronger take-up of tiered data plans is positive although effective ARPU accretion is still capped by roaming revenue weakness. We expect higher SAC to crimp 4Q13 EBITDA margin. Our forecast and NEUTRAL rating on the stock remain unchanged as with our FV of SGD3.25 (9% WACC). M1 remains our top telco pick on relatively cheaper valuations versus its local peers.
In line. M1’s 9MFY13 core earnings made up 74% and 75% of our and consensus estimates respectively. 3Q13 service revenue growth of 5.4% brought cumulative service revenue growth to 6.1%- in line with our expectations. The lower handset and A&P led to decent EBITDA and net profit growth of 6.4% and 9.7% respectively YTD.
EBITDA margin held up but should fall in 4Q13 due to the launch of the iPhone 5s/5c and the Samsung Note 3 in late September. Subscriber acquisition cost (SAC) fell 2% q-o-q as customers held back their purchases in anticipation of the launch.
Decent demand for MiBox. M1 disclosed that slightly <70% of the Android set-top box (launched in 3Q13) sold is bundled with its fiber offering. It hopes to qualify for content cross- carriage by mid-2014 when the number of pay-TV subscribers hit the 10k mark for eligibility.
Roaming weakness puts pressure on APRU despite higher take-up of tiered plans. The percentage of postpaid customers on its tiered data plans widened to 32% from 27.5% in 2Q13 (4% in 3Q12). While M1 said it continued to witness good ARPU uplift (+10% on 3G ARPU) from subscribers ‘tiering-up’, roaming revenue pressure has nonetheless cap effective ARPU accretion.
Maintain NEUTRAL, FV of SGD3.25. There is no change to our forecast with management reaffirming its profit guidance for the full year of ‘moderate growth’. Management said the recent penalty imposed by the 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.