Revenue fell 8.6% to $186.5m due to a continued fall in postpaid revenue and lower handset sales, exacerbated by the fact that 1Q is seasonally a weak quarter due to Chinese New Year in February and a one-week school holiday in March. While reported net profit rose 10% YoY to $42m (due to a lower corporate tax rate), we estimate core net profit at $36.5m (flat QoQ, down 3.7% YoY), in-line with our full year forecast of $147m.

Postpaid mobile revenue fell YoY as market share continued to slip while ARPU fell on the impact of promotions and to a less extent, lesser roaming and more IDD traffic on value rates. Nevertheless, EBITDA margin still improved YoY and QoQ due to lower subscriber and retention costs (in part due to the new Take3 promotion which allows M1 to amortise handset costs rather than expense them immediately).

According to management, the negative effect on postpaid ARPU in 1Q09 was due more to the impact of two promotions (Multi-Line Saver and Per Second Billing, which were both launched in Mar 2008) rather than factors related to the economic downturn, such as a hollowing-out of the foreign worker subscriber base, which so far has not happened as the construction industry remained buoyant.

M1 has started to address its shrinking postpaid market share with the Take3 promotion (contracts that come with free handset and option to exchange for a new one in nine months), which is aimed at capturing niche segments it believes will help it reverse the trend, with the promise of more promotions to come. In addition, management hinted that a new CEO has been found and an announcement will be made “very soon”.

Management is guiding for a stable bottomline in 2009 although revenue is likely to dip. In the longer term, we reckon M1 will be the biggest beneficiary of the NGNBN, which will allow it to build up a multi-play platform and help grow the topline again. M1 is still the cheapest telco, with receding risks now that the OpCo overhang is over and still-healthy cashflow that will ensure a sustained dividend.