M1 blames sour gains on burgeoning demand for Android phones

Net profit fell some 19.5% to S$33.1m.

According to OCBC, M1 Ltd reported another set of softer-than-expected set of 3Q12 results yesterday. While revenue of S$254.7m (+4.0% YoY and +9.6% QoQ) was largely in line with our expectations, another sharper-than-expected decline in margins saw net profit falling some 19.5% YoY and 6.0% QoQ to S$33.1m.

Here's more from OCBC:

M1 attributed the reduced profitability to the continued take-up of Android phones (amortized upfront) and also strong demand for other high-end smartphones (Apple iPhone 5 was launched on 25 Sep). For 9M12, revenue inched up 0.2% to S$749.4m, meeting 70.6% of our full-year forecast, while net profit fell 14.1% to S$108.6m, or 69.7% of our FY12 forecast.

Nevertheless, management remains confident that 3Q12 net profit is probably the lowest for this year as it now guides for QoQ
improvements in both top and bottom lines. Management believes the strong demand for smartphones will continue to drive top-line performance while the Android subscribers previously acquired in 2Q and 3Q will contribute more positively to its bottom-line.

In addition, it expects to see an uplift in ARPU as new subscribers (and those on recontract) are taking up the mid-end smartphone plans in light of the less-generous data bundles. But for the full-year, it has not changed its previous guidance given in 3Q, as it continues to expect the handset subsidies expensed upfront to have an impact on profitability.

As such, we are paring our FY12F earnings by another 2.8% to account for the lower margins, even though we are maintaining our revenue forecast. However, we are leaving our dividend forecast of S$0.145/share unchanged, given its ability to generate strong free cashflows, which increased 46.5% in 9M12 to S$169m. Our DCF-based fair value also remains at S$2.80.

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