Month: August 2007
ST ENGG – SGX
ST ENGINEERING TO DIVEST SHARES IN ASSOCIATED COMPANY, ECS HOLDINGS LIMITED
Singapore, 8 August 2007 – Singapore Technologies Engineering Ltd (ST Engineering) today announced that ST Electronics (Info-Software Systems) Pte. Ltd. (STEE-InfoSoft), together with certain other vendors (Other Vendors) have entered into a conditional Sale and Purchase Agreement (Agreement) with VST Holdings Limited (VST or the Purchaser). Under the Agreement, STEE-InfoSoft has agreed to sell its 75,840,978 ordinary shares (ECS Shares) in the capital of its associated company, ECS Holdings Limited (ECS), to VST. This represents 20.77% of ECS’ issued share capital. The ECS Shares will be sold to VST at a sale price of S$0.668 per share, for an aggregate cash consideration of S$50.7 million (Aggregate Consideration). The sale price of the ECS Shares was arrived at on an arm’s length basis. STEE-InfoSoft is a wholly-owned subsidiary of ST Engineering’s electronics arm, Singapore Technologies Electronics Limited (ST Electronics).
STEE-InfoSoft invested in ECS in September 2004 and the cost of investment in ECS was S$24.8 million. The market value of the ECS Shares based on the closing price of the ECS Shares on the Singapore Exchange Securities Trading Limited on 3 August 2007 was S$47.8 million.
Over the past three years, the investment in ECS had provided good access to additional capabilities and a marketing and distribution channel to offer the group’s information technology solutions to customers in Singapore and other regional markets. This sale of ECS shares presents an opportunity to maximise shareholders’ value for STEE-InfoSoft.
The sale of the ECS Shares is not expected to have any material impact on the consolidated net tangible assets per share and earnings per share of ST Engineering for the current financial year.
Completion of the sale and purchase of the ECS Shares is conditional upon the fulfillment or waiver of certain conditions precedent, which include the following:
(i) The Stock Exchange of Hong Kong Limited (SEHK) having confirmed to the Purchaser that it has no comments on the circular relating to the Agreement to be despatched to the shareholders of the Purchaser for approving the same as a very substantial acquisition pursuant to Chapter 14 of the Rules Governing the Listing of Securities on the SEHK;
(ii) the passing of a resolution by the shareholders of the Purchaser approving the transactions contemplated by the Agreement and the acquisition of all the remaining ordinary shares of ECS by way of a mandatory general offer to be made following completion of the sale and purchase of the ECS Shares and the ordinary shares held by the Other Vendors (Completion); and
(iii) the aggregate number of ordinary shares of ECS being sold to the Purchaser by STEE-InfoSoft and the Other Vendors under the Agreement amounting to not less than 30.1% of the issued ordinary shares of ECS (assuming that all options under the ECS Share Option Scheme II held by persons other than the Other Vendors have been exercised in full).
Pursuant to the Agreement, the Purchaser has agreed to pay a deposit (Deposit) of 10% of the Aggregate Consideration to an escrow agent. The Deposit will be applied towards payment of the Aggregate Consideration on the completion of sale and purchase of the ECS Shares.
Source : SGX
SingTel – ML
Telkomsel drives PO Upgrade
PO upgraded 6% to $4.31/sh
We raise our PO for SingTel 6% from $4.05/sh to $4.31/sh, primarily on the back of an 8% increase in PT Telkom’s PO post its 2Q07 result. As part of his PT Telkom (TLKMF, C-1-7, Rp11,650) PO increase, Verdi Budiman increased his DCF valuation on Telkomsel (65% owned by PT Telkom, 35% owned by SingTel) by 28% from Rp199trn to Rp256trn. This adds 21¢/sh to our SingTel valuation.
Weak SGD also helps
On a SingTel earnings weighted basis, the Singapore dollar is down 3% YTD against SingTel’s subsidiary and major Associate countries. In particular, the SGD is down 7% against the AUD YTD. We rebase our earnings and valuation forecasts on current spot currency rates which adds a further 5¢/sh to our PO.
35% potential return
Our PO combined with our 11.5¢/sh dividend forecast now implies 36% potential return. We have buy recommendations on all of SingTel’s main mobile Associates and believe the flat outlook for the Optus/Singapore domestic stub is more than factored into the current share price. We reiterate our Buy rec.
1Q08 earnings preview – expect strong EPS growth
SingTel is scheduled to report its 1Q08 result on 14th August. We are forecasting pre-exceptional FY08 NPAT growth of 4.6% driven by 26% growth in contribution from Associates and 3.5% growth in consolidated EBITDA. After the capital reduction in September 2006, EPS is expected to increase by 10%. IDA Compensation ($84m per quarter) will not be accounted for from 1Q08 onwards and 1Q07 also benefited from 2 quarters of contributions from Globe. Excluding these two factors, we expect underlying EPS growth of c.26%.
StarHub – BT
Citigroup, Aug 2
GOOD value but limited short-term catalysts: 2Q results and commentary reaffirms our view that the stock lacks immediate catalysts. That said, we think investors with a 12-18 month view should look to accumulate at these levels as cable TV tariff hike-driven profit upside and another capital management effort are catalysts in waiting into 2008. The assured 5.6 per cent yield limits downside risk.
Modestly softer 2Q results: Ebitda of S$164 million (+13 per cent year-on- year) in line but with S$5.3 million in one-time inter-carrier settlement credits. Net profit of S$80.8 million (+7 per cent year-on-year) was lower than our S$86 million estimate on higher (deferred) taxes. Lower mobile margins were the primary reason for lower-than-expected Ebitda.
Subdued margin guidance for 2H: The management flagged higher costs into 2H as the primary reason to maintaining 34 per cent service Ebitda margin guidance for the year (despite 35.4 per cent for 1H). The ‘high-single digit’ revenue guidance for the year is clearly conservative though, given 10.4 per cent growth in 1H and that cable TV tariff hikes kick in effective 2H – we have raised our topline expectations.
Changing estimates: Revenue estimates are up 1-2 per cent for 2007 and 2008 – still conservative, we think, as we attempt to bake in the cable TV tariff hikes. There is minimal change to Ebitda estimates as we factor in higher content costs. The 9 per cent cut in net profit estimates for 2007 primarily reflects a higher effective tax rate – all of this is deferred tax and does not impact cash flows though.
Higher DPS commitment of 15.5 cents for 2007: Versus 14 cents guidance earlier, this reflects a strong FCF profile, implying a sound 5.6 per cent yield.
BUY
StarHub – DBS
Delivers on promise
Comment on Results
Starhub reported a net profit of S$80.8m, up 7% y-o-y and 15.4% q-o-q. Excluding the impact of higher tax rate, the results are broadly in line with our estimate of S$83m. Starhub has proposed a 4 cents interim dividend and raised its full year dividend guidance to a minimum of 15.5 cents from 14 cents earlier.
Broadband segment was the top performer in revenues. Revenue grew 10.8% y-o-y with broadband revenue registering the fastest growth of 15.6%. Overall service EBITDA margin of 35.3% is better than 34.4% last year. While there was an improvement in EBITDA margins in all the three segments, margins for mobile business improved significantly by 3 ppt to 43.2% because of (1) focus on higher margin, pre-paid service that lowered overall customer acquisition costs (2) efforts on retention of high-value post-paid customers with higher minutes of usage (MoU), even at the cost of market share.
Outlook
In our view, StarHub is well on track to surpass its official guidance of “high single digit revenue growth” and “service EBITDA margin around 34%” for the full year. We have slightly trimmed down our earnings estimates for FY07 and FY08 by 3% each to factor higher tax rate of 21% up from 18% assumed earlier.
Expect a stable 3Q07 to be followed by a strong 4Q07. Pay TV would be the weakest link in 3Q07 as amortisation of EPL content cost would kick-in, eroding the pay TV margins. The projected increase of S$4 in monthly fee of basic channels would not be sufficient to cover the higher cost of content. A hike of S$10 in monthly fee for sports channels would come into effect in 4Q07, thus helping to sustain the margins. We suspect, with more advertising revenue, StarHub would be able to stem the decline in pay TV margins in the next 6-9 months.
Recommendation
Maintain BUY at our DCF-based (WACC 7%, terminal growth rate 1%) 12-month target price of S$3.45.
Unclear picture on National Broadband Network (NBN). The request for proposal (RFP) for NBN should be out in 3Q07 and IDA is expected to award the project towards the end of 2007. StarHub is one of the 12 bidders, who have been prequalified by IDA. It will take another 3-5 years to build the high-speed network and the operator would need to provide access to the network at regulated prices to other service providers. In our view, despite government subsidy, the project cost would be substantial with a long break-even period. Moreover, a completely new network could introduce excess broadband capacity in the island, eroding profitability of all the players. Alternatively existing networks could be upgraded to provide high-speed broadband service rather than building a new network from scratch. IDA’s decision would be important in this regard.
StarHub – OCBC
Ups dividend payout
Decent 2Q07 results. StarHub Ltd (STH) reported a decent set of 2Q07 results. Revenue grew by about 10.1% YoY and 3.5% QoQ to S$489m. On the other hand, net profit rose 6.8% YoY and over 15.6% QoQ to S$80.8m. The reason for the sequential bottom-line strength was due to a low base effect in 1Q07 as the result of the recognition of deferred tax liability of S12.1m. A more reflective line would be at the pre-tax level and in that context it grew by about 12.2% YoY and 5.4% QoQ, broadly in line with top-line growth. In terms of EBITDA, it grew by 12.7% YoY and 3.8% QoQ to S$163.7m, again in line with revenue growth. More importantly, EBITDA margins improved QoQ from 35% to 35.3%. All segments did well with revenue improving at low single digit sequentially. Going forward, STH is guiding for a high single digit revenue growth with full year margin at 34%, implying more competitive pressures in 2H07. Finally, STH is revising up its quarterly dividend from 3.5 cents to 4.0 cents, implying FY07 dividend of 15.5 cents or an attractive yield of 5.6%.
Emphasis on higher value post paid. Mobile division continues to dominate group revenue contribution, making up 55% of total revenue in 2Q07. Post paid in turn contributed to over 74% of mobile revenue and is the more important segment. Over the last quarter, subscribers increased 48,000 QoQ to 1.63m. The bulk of which came from pre paid with post paid seeing a decline of 2,000. The reason for this was due to STH’s strategy to target higher end post-paid customers. This move appeared to have worked with slightly lower post-paid subscribers but with higher ARPU usage leading to higher overall revenue.
Broadband enjoyed increase in subscribers. This segment continued to enjoy low single digit sequential growth in subscriber numbers. About 5,000 new customers were added and at ARPU of about S$60/mth (flat QoQ). This in turn led to revenue growth of about 3% QoQ to S$62.1m.
Maintain BUY. We see STH as defensive, with steady albeit moderate growth, but with attractive dividend. STH has revised dividend policy from 3.5 cents to 4.0 cents per quarter. As such, FY07 and FY08 dividend will be at least 15.5 cents and 16.0 cents, respectively, giving yields of about 5.6% and 5.8%. In terms of rating and valuation, we maintain our S$3.24 fair value and BUY rating.