Month: September 2012
STEng – OCBC
DEFENSIVE PLAY WITH ROOM TO CLIMB
- Mid-cycle multiple
- Order book may surpass S$13b
- Increasing earnings visibility
Share price can climb further
A safe haven in turbulent times, STE has outperformed the STI significantly since the beginning of the year, rising 29.0% versus the 15.6% increase by the index. The stock reached its 52-week high of S$3.55 last Friday. The counter is trading at a historical P/E multiple of 20.1x and should still have room to climb (about half a standard deviation above 10-year average). STE’s earnings are fairly stable given its four main diversified businesses, which help to reduce its exposure to sector-specific risks. With an attractive FY12F dividend yield of ~4.8%, STE should continue to perform in today’s uncertain but liquidity-rich global economic environment.
ST Marine wins S$179m worth of contracts
It has recently been announced that ST Marine has secured shipbuilding and repair contracts worth ~S$179m. These wins include a contract to build two additional Offshore Support Vessels (OSVs) for Hornbeck Offshore Services, LLC, as well as a series of repair and upgrading projects. With STE’s order book standing at S$12.9b as of end-1H12, we think that it may be greater than S$13b by the end of 3Q12 and expect continued order book growth.
Looking further into the future
We think it is worthwhile noting that STE’s order book clocked at the end of each year has on average grown faster than the following year’s annual revenue. The order book grew 16% p.a. between end-2005 and end-2010 from S$5.38b to S$11.5b while annual revenues grew 6% p.a. between FY06 and FY11. This trend probably suggests that the average tenure of order book contracts has been increasing. The fact that the order book has been growing faster than revenue implies increasing earnings visibility into the future.
Raise fair value to S$3.81
Rolling forward our valuation to blended 2H12/1H13 EPS and increasing our P/E multiple from 20.0x to 20.5x, we raise our fair value from S$3.50 to S$3.81 and maintain a BUY.
SingPost – OCBC
NOT JUST A “DIVIDEND” STOCK
- Steady climb since Jan
- Stock to hold in current environment
- Focus on management’s use of cash
Continues its upward march
The steady climb of Singapore Post’s (SingPost) stock has continued since the start of the year when we upgraded the stock to BUY. Cautiously improving market sentiment and the flood of liquidity searching for safe havens with respectable yields has supported performance, along with greater expectations of further growth opportunities in SingPost after the issuance of S$350m perpetual capital securities in Feb this year.
Total returns since 2010 attractive for a “dividend” stock
As we noted in our initiation report in Jan 2009, spectacular gains are unlikely to be enjoyed by investors in the stock. This is evident by the STI’s significant outperformance against SingPost in 2009 when global equities rebounded from beaten-down valuations in Mar 2009. However, we note that SingPost’s performance in 2010, 2011 and 2012 YTD has been commendable – it outperformed the STI in 2010, slightly lagged the STI in 2011 and is now ahead of the market so far this year (Exhibit 1). This has allowed investors to ride on the upturn in the last few years while collecting dividends (Exhibit 2). Looking at 2012, this year is likely to be a good one for SingPost’s investors too.
Upside still available; maintain BUY
We like SingPost for its stable operating cash flows and consistent dividends. At the same time, the group has launched new initiatives over the years and diversified into other business areas as well. However, the next leg of growth is heavily dependent on management’s astute use of the group’s cash pile (S$668.6m as of Jun 2012). With changing market dynamics (lower risk free rate and market return), we update our valuation assumptions (lower cost of equity: 6.49%, terminal growth unchanged: 1.5%). Based on our dividend discount model, our fair value estimate rises from S$1.14 to S$1.20. Maintain BUY.
September 2012
STI = 3060.34 (+0.91)
|
Stock |
Period |
EPS cts |
DPS cts |
Mkt |
Yield |
PE |
Div Breakdown |
|
HL Fin |
FY11 (Dec) |
22.65 |
12.00 |
$2.440 |
4.918% |
10.77 |
Interim 4ct ; Final 8ct |
|
SingPost |
FY12 (Mar) |
7.407 |
6.25 |
$1.095 |
5.708% |
14.78 |
Q1, Q2, Q3 1.25ct ; Q4 2.5ct |
|
SPH |
FY11 (Aug) |
24 |
24.0 |
$4.070 |
5.897% |
16.96 |
Interim 7ct ; Final 9ct + Special 8ct |
Aviation Services
|
Stock |
Period |
EPS cts |
DPS cts |
Mkt |
Yield |
PE |
Div Breakdown |
|
SATS |
FY12 (Mar) |
15.40 |
26.0 |
$2.680 |
9.701% |
17.40 |
Interim 5ct ; Final 6ct + Special 15ct |
|
SIA Engg |
FY12 (Mar) |
24.56 |
21.0 |
$4.160 |
5.048% |
16.94 |
Interim 6ct ; Final 15ct |
|
ST Engg |
FY11 (Dec) |
17.28 |
15.5 |
$3.540 |
4.379% |
20.49 |
Interim 3ct ; Final 4ct + Special 8.5ct |
Note : SATS Special Div is Observed to be Non-Recurring
Transport
|
Stock |
Period |
EPS cts |
DPS cts |
Mkt |
Yield |
PE |
Div Breakdown |
|
SBSTransit |
FY11 (Dec) |
11.89 |
5.90 |
$1.475 |
4.000% |
12.41 |
Interim 3.1ct ; Final 2.8ct |
|
ComfortDelGro |
FY11 (Dec) |
11.27 |
6.00 |
$1.715 |
3.499% |
15.22 |
Interim 2.7ct ; Final 3.3ct |
|
SMRT |
FY12 (Mar) |
7.9 |
7.45 |
$1.675 |
4.448% |
21.20 |
Interim 1.75ct ; Final 5.7ct |
TELCO
|
Stock |
Period |
EPS cts |
DPS cts |
Mkt |
Yield |
PE |
Div Breakdown |
|
SingTel |
FY12 (Mar) |
25.04 |
15.8 |
$3.200 |
4.938% |
12.78 |
Interim 6.8ct ; Final 9ct |
|
M1 |
FY11 (Dec) |
18.1 |
14.5 |
$2.750 |
5.273% |
15.19 |
Interim 6.6ct ; Final 7.9ct |
|
StarHub |
FY11 (Dec) |
18.40 |
20 |
$3.720 |
5.376% |
20.22 |
Q1 5ct ; Q2 5ct ; Q3 5ct ; Q4 5ct |
Funds / Infrastructure
|
Stock |
Period |
DPS cts |
Mkt |
Yield |
NAV |
Div Breakdown |
|
SPAus |
2H – Mar12 |
A4.0 (Gross) |
$1.340 |
7.638% |
A$0.88 |
2H12 A4.0ct ; 1H12 A4.0ct |
|
MIIF |
1H – Jun12 |
2.75 |
$0.535 |
10.280% |
$0.720 |
1H11 2.75ct ; 2H11 2.75ct |
* SPAus DPU in A$. Yield is Calculated Using Latest Exchange Rate (1.2794) fm Yahoo
NOTES :
- Mkt Price is as on 28-Sep-12
- ST Engg : 1H12 (Jun) – 3ct
- ComfortDelgro : Q212 (Jun) – 2.9ct
- SBSTransit : Q212 (Jun) – 1.35ct
- StarHub : Q212 (Jun) – 5ct ; Q112 (Mar) – 5ct
- MIIF : 1H12 (Jun) – 2.75ct ; 2H11 (Dec) – 2.75ct ; Guidance for 2H12 (Dec) = 2.75ct but FY13 will be Impacted by HNE (Revenue Reduced by 20% – 25% due to Max Toll Cap)
- SPAus : 2H12 (Mar12) – A4ct = A1.333ct (Franked) + A2.159ct (Interest) + A0.508ct (Capital Returns) ; FY12 Guidance = A8.2ct ; 3-for-20 @ S$1.25 (A$1)
- SATSvcs : Q412 (Mar12) – Final 6ct + Special 15ct ; Q212 (Sep11) – Interim 5ct
- SingTel : 2H12 (Mar12) – Final 9ct ; 1H12 (Sep11) – Interim 6.8ct ; Includes Exceptional Net Tax Credit S$270M
- SIAEC : Q412 (Mar12) – Final 15ct ; Q212 (Sep11) – Interim 6ct
- SMRT : Q412 (Mar12) – Final 5.7ct ; Q212 (Sep11) – Interim 1.75ct
- SingPost : Q412 (Mar12) – 2.5ct ; Q312 (Dec11) – 1.25ct ; Q212 (Sep11) – 1.25ct ; Q112 (Jun11) – 1.25ct
- SPH : 1H12 (Feb) – 7ct
- StarHub : FY12 Div Guidance – 5ct/Q
- M1 : 2H11 (Dec) – Final 7.9ct ; 1H11 (Jun) – Interim 6.6ct
SingTel – OCBC
SHARE SALE MINOR HICCUP
- Temasek selling 400m shares
- Temporary knee-jerk reaction
- Adding value to mobile business
Temasek selling 400m shares
Temasek Holdings has entered into an agreement to sell 400m shares in SingTel as part of its portfolio rebalancing. We understand that it has a upsize option to sell another 100m shares. According to newswire reports, the share sale was done at S$3.20 each, which is a 3.9% discount to Tuesday’s S$3.33 close, and also at the lower end of the indicative S$3.20-3.25 range. As expected, the news resulted in a negative knee-jerk reaction, causing SingTel’s share price to open some 5.1% lower at S$3.16.
Not indicative of SingTel’s business prospects
Meanwhile, Business Times reported that the sale was a result of a “reverse inquiry” from bankers, suggesting that the move is more opportunistic (given that the share price has risen 6.7% YTD) rather than a direct reflection of SingTel’s business prospects. In any case, we note that Temasek will be barred from selling more shares for 120 days after completing the sale. Temasek will hold a 51.3% stake in SingTel (assuming 500m shares are sold), and the telco will remain the largest company in its portfolio by market capitalization.
Good demand for iPhone 5
Separately, demand for the new iPhone 5 over the weekend has been very positive. We visited several SingTel outlets – including some of its competitors – and the queues were very long indeed. While the higher subsidies for the iPhone 5 may initially weigh on margins, the new contracts with less generous data bundles and the faster LTE access speed should eventually bump up ARPU and margins. SingTel has also made several acquisitions in the mobile service space – the latest being a S$3m stake in mobile game firm – and this should allow it to add value to its mobile business.
Maintain BUY with S$3.61 fair value
Despite the negative knee-jerk reaction, we believe that investors should not read too much into the share sale. Instead, we continue to like its defensive business and relatively decent dividend yield of ~5%. Maintain BUY with an unchanged S$3.61 fair value.
TELCOs – Kim Eng
iPhone 5 To Dampen Margins in 2H12
Slower 2H ahead. We are maintaining our SELL calls on SingTel and StarHub as we expect them to be hardest hit by the higher subsidies and longer clawback periods of the iPhone 5 in 2H12. However, M1 is likely to see a more muted impact due to its accounting treatment which brings forward part of future revenue to offset the cost of the subsidy. As such, M1 remains a HOLD, and is our top telco pick in Singapore.
iPhone 5 trumps iPhone 4S. Apple’s iPhone 5 started selling around the world last Friday, including Singapore, and demand is much stronger than the 4S model. Apple has reported that pre-orders for iPhone 5 topped 2m units in 24 hours, more than double the amount of pre-orders it took for the iPhone 4S, reflecting strong pent-up demand for this new model. In Singapore, all the telcos sold out online 90 minutes after opening for booking.
Subsidies rise sharply. Based on the telcos’ iPhone 5 plans, they are stretching their subsidies out over a longer period for iPhone 5 compared to the iPhone 4S. At the sweet spot of the two cheapest plans, which have a minimum contract period of 24 months, the telcos will need almost 1.5 months more to recoup their subsidy cost for the iPhone 5 than the iPhone 4S.
Margin impact likely to be worse than iPhone 4S. EBITDA margins are likely to be affected in 3Q12. Based on past trends, we expect a larger impact (3-4ppt) for SingTel and StarHub, but a more muted impact on M1 (1-2ppt) due to its accounting treatment for iPhones where future revenue is brought forward to cover the cost of subsidies. Based on current reported iPhone sales however, we think our existing forecasts are still in the money.
Hopefully, higher data usage can offset higher subsidy. iPhone 5 is an LTE handset, and the faster LTE speeds should drive up data usage as it would be much easier to consume data, particularly when viewing video and using FaceTime for video chats. We are not assuming a significant rampup in data revenue yet because we think there will be a period of adjustment, where telcos need to improve their app and content offerings, and users need to adjust their consumption patterns.