M1

M1: 3Q12 margins decline, results weaker than expected to broadly inline. Net profit fell 19.5% yoy to a 3 yr low of $33m, on rising costs and margin contraction. Underlying operational performance was relatively weak, as acquisition costs surged 29% yoy (16% qoq) on account of greater demand for high end smartphones (which carry higher subsidies) while service revenue growth remained muted. On a positive side, fixed network service continued to firm, growing 16% yoy ($13m) as fiber customers grew to 44k. Mgt believes that 4Q performance should recover on account of subscriber acq done in 2Q and 3Q and new smartphone and mobile broadband price plans. Says M1 could maintain its absolute div level for FY12e despite earnings decline. Deutsche maintains Sell with TP $2.20, citing rich valuations at 15.6x P/E (35% premium to 5 yr historical avg). Credit Suisse maintains Outperform with TP $3.00, believes despite near term pressure, M1 could be the longer term beneficiary of both NGNBN progress and an improvement in mobile data monetization.