M1’s underlying NPAT of S$37mn was 6% above consensus. Even the 6-7% y-y drop each in revenue and EBITDA was better than consensus, with a 41% margin. Operational trends were strong overall. Total net-adds of 50k subs was driven by a 43k increase in the prepaid segment and a 7k increase in the post-paid segment. Sequentially, post-paid ARPU rose 2% but pre-paid fell 5%. Data ARPU, which is largely wireless broadband, was stable at S$23. M1’s Take-3 offering appears to be gaining some traction in the mid to upper post-paid segments, resulting in ARPU improvement; however, the company did not provide any indication on subs. It declared an interim dividend of S6.2c.

1) Subscriber acquisition costs (SAC) rose 13% q-q to S$151, which it attributed to marketing initiatives and some pick-up in competition. It intends to introduce additional products in the mobile segment, but expects flat SAC sequentially. The impact of iPhone is expected to be limited. 2) While a decision on bundling is yet to be taken, M1 could potentially partner with its shareholders for non-premium content bids. 3) M1 rates the possibility of a special dividend as low. 4) The company is currently in discussions to refinance a S$250mn debt, which matures after May 2010. 5) M1 is also taking initiatives to “be operationally ready for the Next Generation National Broadband Network (NGNBN)”, which we believe could be a significant opportunity.

M1’s FY09 guidance is for a flat NPAT, which is in line with our current estimates. At 10.4x FY10F P/E, M1 is trading below the sector average, and its 7.7% dividend yield remains attractive.

Our DCF-based 12-month price target uses a WACC of 8.7%, calculated using an 11% cost of equity, a 4% cost of debt and a terminal growth rate of 1.0%.