Month: January 2008
SingTel – CIMB
Bharti’s 3QFY08 results
Beating consensus. Bharti’s (SingTel’s 30.5% associate) 3QFY08 earnings of Rs17.2bn (+42% yoy) beat consensus estimate by almost 3%. This was another strong all-round performance. Topline growth was 42% yoy as Bharti increased its market share to 23.6% (+180bp yoy). EBIT margin expanded to 27.7% (+125bp yoy) through economies of scale and operating leverage. Bharti also announced additional spectrum granted by the government in five telecom circles.
Extends lead over rivals. Bharti added 6.3m (49% more than Vodafone) wireless subscribers in 3QFY08 and extended its market lead over Vodafone and Reliance, ending the quarter with a 23.6% market share and a wireless subscriber base of 55.2m. As expected, ARPU continued to slide (-2% qoq) as Bharti continued to roll out aggressively in rural villages.
Allocated additional spectrum in five telecom circles. Bharti has received formal communication from the Department of Telecom for the allotment of additional spectrum in West Bengal, Gujarat, Uttar Pradesh (west), Assam and Haryana. Bharti is expecting additional spectrum in another five circles (Rajasthan, Andhra Pradesh, Karnataka, Bihar and Tamil Nadu) in a couple of months.
Monetising Infratel and sharing of tower assets. Bharti has sold an 8-10% stake in Infratel to eight leading international investors for US$1bn, valuing Infratel’s assets at US$10bn-12.5bn. Separately, Infratel has formed a JV (TowerCo) with Vodafone and Idea last month to share tower assets. The rational for the exercise is to reduce the capex burden. FY09 capex is forecast to decline to US$2.5bn from US$3.3bn-3.5bn in FY08.
Comments
This strong set of results should dispel rising concerns over Bharti’s growth prospects, e.g. threat of competition from Vodafone and Reliance, spectrum shortage. Bharti continues to prove its unrivalled advantages in branding, distribution network and economies of scale.
We are positive on the tower-sharing strategy as we expect benefits to outweigh risks for Bharti. Firstly, Bharti will have a reduced capex burden and enlarged coverage.
Secondly, we believe Bharti stands to win more subscribers than it will lose from tower-sharing given its strengths in branding and distribution network.
Valuation and recommendation
Maintain Outperform on SingTel with unchanged sum-of-the-parts target price of S$4.55. SingTel’s reliable earnings growth remains intact, in our view, with Bharti’s strong showing. Bharti is the key earnings driver at SingTel, contributing 20% to its underlying earnings. In addition, SingTel’s 5.3% YTD outperformance relative to Bharti supports our view that SingTel offers lower risk exposure to the earnings growth of regional mobile operators in an environment of heightened risk aversion.
SingPost – CIMB
Rising headwinds
• In line. SingPost’s 3QFY08 earnings of S$36.8m (+7.9% yoy) were in line with consensus and our estimates. 9MFY08 earnings form 77% of our FY08 earnings estimate. This was a satisfactory set of results with topline and margins coming in within expectations. A DPS of 1.25 cts was also within expectations. Key highlights were: 1) sustained cost pressure; and 2) rising competition from the ongoing liberalisation of the postal system.
• Decent revenue growth. Topline growth (+9.2% yoy) was driven by direct mail (+28% yoy) on the back of a robust domestic economy. Logistics grew 5.3% yoy on increased Speedpost traffic and growth in vPOST online shopping transactions. Retail revenue grew 7.9% yoy as growth in financial services (+16.4% yoy) was offset by a continued decline in agency/bill presentment services.
• But margins were eroded. EBIT margins declined 90bp yoy to 37.8% on the back of rising costs (labour and volume-related) as well as the product mix (faster growth of lower-margin direct mail business). We also note sustained pressure on agency/bill presentment services which overwhelmed gains from financial services. We expect the margin pressure to mount from ongoing liberalisation of the postal system.
• Trimming earnings estimates. We maintain our FY08 earnings estimate but trim FY09-10 estimates by 2-3% to reflect margin pressure from higher labour costs as well as impending competition from liberalisation of the postal system. Our earnings downgrade is buffered by our expectation that SingPost will be able to offset some margin pressure through productivity improvements.
• Downgrade to Neutral from Outperform with lower target price of S$1.20 (previously S$1.41). Our DDM-based target price has been reduced for two reasons: 1) a higher cost of equity of 7.2% from 6.5% previously on evidence of higher earnings risk from sustained cost pressure, substitution as well as impending competition; and 2) our earnings downgrade. The stock lacks catalysts in the near term and we are unconvinced that management will unlock value from the Singapore Post Centre anytime soon. Nevertheless, downside should be limited by a dividend yield of over 6%.
SingPost – BT
SingPost: New players will squeeze margins
Q3 earnings rise 7.8% to $36.8m on better results for all business segments
SINGAPORE’S liberalisation of basic mail services and the entry of new players will squeeze margins for Singapore Post, the company said yesterday.
In a statement announcing its third-quarter results, the postal operator said that along with rising operating costs in the economy, ‘this will result in margin pressure’.
SingPost, which held the monopoly on basic mail services, said it will pursue and implement initiatives to grow its core mail and logistics businesses. As part of its diversification strategy, it will leverage its retail and distribution network to offer higher value products and services to its customers.
The company is also looking at ways to extend its regional reach.
SingPost is continuing to review its non-core businesses and is exploring opportunities to ‘unlock’ the value of SingPost Centre.
For the third quarter ended Dec 31, 2007, it posted a net profit of $36.8 million or 1.914 cents per share, up from the previous corresponding quarter’s $34.1 million or 1.782 cents per share.
The earnings rise came on the back of better results for all its three business segments of mail, logistics and retail.
Q3 revenue grew 9.2 per cent to $122 million. An interim quarterly dividend of 1.25 cents per share, pay- able on Feb 29, was also announced yesterday.
Mail revenue, which made up the bulk of sales, increased 9.5 per cent to $94.2 million on higher mail volumes.
The logistics segment turned in a revenue of $17.9 million, a rise of 5.3 per cent, from increased Speedpost traffic and growth in its vPost on-line shopping transactions.
Retail revenue grew 7.9 per cent to $15.6 million, as growth in financial services and retail products continue to offset the decline in agency/bill presentment services, said the company.
Rental and property-related income improved by 21.6 per cent to $6.2 million, as a result of higher rental rates and yield enhancement initiatives at SingPost Centre.
Total expenses rose 10.7 per cent to $84.9 million as a result of increased labour and volume-related costs.
The first nine months saw revenue of $353.5 million, up 9.3 per cent, while net profit was $114.8 million, a 13.5 per cent rise.
SingPost’s group chief executive officer Wilson Tan said: ‘The third quarter is traditionally a busier period for SingPost because of the year-end festive season.’
‘In mail, despite the decline in year-end festive postings, we achieved steady growth in direct mail in tandem with a robust Singapore economy,’ he added.
Mr Tan also noted that on the retail front, the company leveraged its network of post offices by expanding its service offerings with festive shopping through shop@post, featuring items such as notebooks, iPods and branded watches.