M1

M1: 2Q12 results, headline net earnings miss. Analysts cite change in handset mix, accounting treatment. 2Q12 net profit plunged 18% yoy to an almost 3 yr low of $35m on revenue and margin contraction. Total revenue at $232.3m fell 5% yoy, largely due to a 26% decline in accrued handset revenues. Citi notes this was driven by accounting variances with a shift to Android handsets, which are expensed upfront as compared to iPhones where subsidies are amortized over 2 yrs. Nearly 70% of handset sold in 2Q were Android handsets as compared to ~70% iPhone in the previous two qtrs. Says FCF shows a more accurate picture, with 2Q12 FCF +68% yoy (normalized) and 156% qoq. Meanwhile 2Q12 EBITDA margin continued to recover sequentially and reached 31.1% as lower subscriber acq costs (due to lower subsidies for Android handsets) supported. Mgt maintained its interim div at 6.6cts/sh (80% payout). Although mgt warned of near term margin pressures, it said it would target to maintain absolute DPS. Citi reiterates Buy, raises TP to $2.86 from $2.80. Tips possibility of special dividends, recommends investors to use the potential misunderstanding on this qtrly performance which could lead to short term weakness as a buying window. Credit Suisse maintains Outperform with TP $3.00. UBS keeps at Neutral with TP $2.60. Deutsche maintains Sell with TP $2, citing weak 2Q performance.