Month: February 2008
ComfortDelgro – CIMB
Defensive diversified earnings
• Within expectations. 4Q07 core net profit of S$50.1m (+4.2% yoy) was within consensus and our expectations, with revenue growth driven by all its business segments, especially its overseas operations in the UK, China and Australia. FY07 core net profit of S$223m (+10.1% yoy) was also within consensus and our estimates, with a reported EPS of S$0.1073. There was an exceptional item of S$42.1m on FY06 relating to the share exchange in Cabcharge Australia. Operating revenue rose 7.9% yoy to S$2.98bn, with overseas operations contributing 47% of the group, up from 45% in FY06. A tax-exempt final dividend of S$0.0265 was declared.
• Bus segment continues to be boosted by overseas operations, turning in revenue growth of 11.9% yoy to S$1.54bn in FY07 on higher ridership and SBS Transit and Shenyang ComfortDelgro Bus and from the implementation of new services at Shenyang ComfortDelgro Anyun Bus, and higher mileages operated by Metroline at better rates and more services as Cabcharge.
• Taxi revenue grew 5.9% yoy to S$917.3m in FY07, mainly due to larger operating fleets in China (Chengdu, Nanning and Jilin), more taxi call bookings in Singapore and more corporate jobs in the UK. Contributions also came from new taxi business in Nanjing and higher taxi advertising income in Singapore. Operating profit in FY07 rose 12.4% yoy to S$121.2m. Rail operations performed well, with revenue up 18.2% yoy to S$90.5m on increased ridership. Operating profit at S$9.2m was a significant improvement from S$0.6m in FY06.
• Maintain Outperform and higher target price of S$2.57. As we roll forward into FY08, we adjusted our FY08-09 forecasts by 3-4% and introduce our FY10 forecasts. Our DCF valuation derives a target price of S$2.57 on a higher WACC assumption of 9.3% (vs 8% previously) to reflect a higher cost of equity. The stock is well-supported by its attractive dividend yield of 7%.
ComfortDelgro – BT
ComfortDelGro’s full-year profit falls 8.8% to $223m
COMFORTDELGRO’S net profit for the full year ended Dec 31, 2007 slipped 8.8 per cent to $223 million, despite revenue growing 8 per cent to $3.02 billion on the strong performance of its overseas bus and taxi operations.
The drop in earnings was due to an exceptional gain of $42.1 million the previous year from a share exchange with partner Cabcharge Australia, a taxi charge card company. Stripping out that gain, net profit would have increased 10.1 per cent.
The land transport giant said that this is the first time that revenue has crossed the $3 billion mark. Overseas turnover, led by the UK, China and Australia, accounted for 47 per cent of the group’s total turnover, up from 45 per cent the previous year.
Operating profit grew by 9.6 per cent to $334.8 million, with overseas operations accounting for 46 per cent of this record figure – up from 42 per cent the year before. But total operating expenses rose 7.8 per cent to $2.68 billion, with the biggest component – staff costs – spiking 10.2 per cent to $950.7 million. Energy and fuel costs were up 10.7 per cent to $216.9 million.
Full-year turnover for the bus business rose 11.9 per cent to $1.5 billion. Turnover from overseas bus operations accounted for 62 per cent of this figure – the fourth consecutive year that it has been higher than that of Singapore operations.
Listed unit SBS Transit’s revenue for the full year to Dec 31, 2007 rose 6.6 per cent to $670 million on higher bus and rail fare, as well as higher advertisement revenue. But its net profit fell 10.9 per cent to $50 million on higher operating expenses from depreciation, repairs and maintenance, and staff and fuel costs. SBS, whose 2007 earnings per share were 16.37 cents (down from 2006’s 18.52 cents), proposed a final dividend of 3.25 cents a share.
Meanwhile, turnover from ComfortDelGro’s taxi business grew 5.9 per cent to $917.3 million, with overseas taxi operations making up 40 per cent of total taxi turnover. In Singapore, turnover grew 4.9 per cent to $552.7 million due to a surge in corporate jobs and call bookings.
The rail business rolled to an 18.2 per cent increase in turnover to $90.5 million on increased patronage of the North-east MRT Line and the two LRT lines. Operating profit was $9.2 million, up from $600,000 the year before, marking its second year in the black.
ComfortDelgro’s earnings per share fell to 10.73 cents from 11.82 cents the previous year, while net asset value for the group rose to 71.11 cents from 69.61 cents a year ago.
StarHub – OCBC
Eyes 10% revenue growth in FY08
Good 4Q07 results. StarHub Ltd posted a good set of 4Q07 results, with revenue up 13.9% YoY and 5.0% QoQ to S$538.8m, aided by good performance from all its business units. Although net profit fell 30.5% YoY (+21.0% QoQ) to S$98.4m, we note that the year-ago quarter was boosted by S$57.6m tax credit versus S$6.7m in 4Q07 (none in 3Q07). It was also ahead of our forecast of S$81.4m and the consensus of S$81.9m. Looking at the pre-tax level, earnings were actually up 9.4% YoY, although it was down 9.2% QoQ. However, we are not surprised by the sequential drop as StarHub typically incurs higher acquisition cost (S$97/connection versus S$92 in 3Q07) in the last quarter. As a result, EBITDA margin also slipped from 33.7% in 3Q07 to 31.2%.
For the full year, revenue grew by a decent 11.6% to S$2,014m, though shy of our S$2,100m estimate, net profit of S$330.4m (down 8.3%) was about 5.4% higher than our estimate. StarHub also declared a final dividend of S$0.045/share (versus S$0.035 in 4Q06), bringing the total dividend for the year to S$0.16 (versus S$0.115 in FY06).
Mobile continues to drive growth. On a segmental basis, its mobile business continues to dominate, contributing around 51.2% of total revenue in 4Q07, up 14.4% YoY and 3.5% QoQ. On the subscriber front, StarHub managed to add some 74,000 new customers, but as the bulk came from the pre-paid segment, EBITDA margin eased to 35% from 40.8% in 3Q07. We note that it was also partly due to the seasonal factor as well as pricier handsets as acquisition cost rose to S$97, up from S$92 in 3Q07. Also worth mentioning, its cable TV business showed a 19.9% YoY and 10.7% QoQ increase to contribute 17.6% of total revenue, aided by a rise in ARPU to S$55, up from S$51 in 3Q07, following an increase in the Sports Group subscription fee in the quarter.
FY08 growth to remain at 10%. For FY08, management remains confident that it can sustain revenue growth at 10%, and hold EBITDA margin on service revenue at about 33%. It also aims to pay a minimum cash dividend of S$0.18/share, or around S$0.045 per quarter. In line with the latest guidance, we have adjusted our FY08 estimates by around 4% higher. Again, we see StarHub as a good defensive stock, backed by an attractive dividend policy, hence we maintain our BUY rating with a revised fair value of S$3.51.
StarHub – Phillip
Strong Results; Excellent Dividend Play
4Q and full-year results. StarHub reported 4Q operating revenue of S$538.8m (+13.9% yoy) and net profit of S$98.3m (-30.6% yoy). Moreover, EBITDA increased to S$157.4m (+7.8% yoy). It also declared a final dividend of S$0.045 per ordinary share, which was higher than the final dividend of S$0.035 last year. This brought the total annual dividend to S$0.16 (+39.1% yoy) per ordinary share for 2007 that was significantly higher than the total annual dividend of S$0.115 for 2006.
On a full-year basis, operating revenue of S$2,013.7m was 11.6% better yoy. However, net profit of S$330.3min 2007 was 8.3% lower yoy because it was boosted by a tax credit of S$20.0m while the net profit of S$360.2m in 2006 was due to a higher tax credit of S$77.2m. If the tax credits were excluded, net profit in 2007 would be at S$310.3m, which would be an increase of S$27.3m (+9.6% yoy) from S$283.0m in 2006
Performances of the various business units. StarHub reported strong growth in its business units: mobile revenue was S$1,037.2m (+12.8% yoy), cable TV revenue was S$341.8m (+9.1% yoy), broadband revenue was S$246.9m (+12.3% yoy), fixed network service revenue was S$279.9m (+7.9% yoy) and sale of equipment was S$107.9m (+15.9% yoy). As at 31 December 2007, the number of customers for its mobile, cable TV, broadband businesses were 1,757,000, 504,000 and 346,000 respectively.
FY08 Outlook. StarHub expects continued growth in its operating revenue in 2008 to be approximately 10% and will pay a minimum annual cash dividend of 18.0 cents per ordinary share for 2007. The EBITDA margin is estimated to be about 33% of service revenue and the cash capital expenditure as a ratio of operating revenue will not exceed 12%.
HOLD recommendation, target price raised from S$3.16 to S$3.30. StarHub has reported better-than-expected financial results. It is also attractive as a dividend play although its operations are focused on the Singapore market. As a result, we are raising the fair value to S$3.30. Nevertheless, we are maintaining our hold recommendation on the stock due to limited upside in the share price.
StarHub – DBS
Results & guidance lag expectations
Story: 4Q07 core net profit of S$71.0m (up10% y-o-y, down 13% q-o-q) was below our and consensus expectations of S$80m. A tax credit of S$27m resulted in net profit of S$98.3m. Besides management declared a final dividend of 4.5 cents bringing total dividend to 16 cents and guided for 4.5cents dividend every quarter.
Point: 4Q07 EBITDA margins were below expectations and FY07 EBITDA margins at 33.7% missed management guidance of around 34%. On outlook, management has guided for EBITDA margins of 33% and revenue growth of 10%. It is the first time that management has guided for lower EBITDA margins.
Relevance: Management guidance is inline with our FY08 earning estimates, which are 5% below the consensus estimates. StarHub trades at over 16x FY08 earnings, which is higher than SingTel’s valuation of 15x, despite StarHub’s lower growth prospects and long term risk from NBN. Maintain HOLD with DCF based (WACC 7%, terminal growth rate 1%) target price of S$3.10 with attractive 6% dividend yield. Although the company has potential for capital management at Net Debt to EBITDA ratio of 1.3x compared to a target of 1.5x-2.0x, management ruled it out in the first half of FY08.
High increase in equipment cost came as a surprise. Operating costs were higher than our expectations mainly due to (1) 71% y-oy increase in cost of sophisticated mobile and set-top boxes, which are getting more expensive and require more subsidies. (2) 71% yo-y increase service cost due to higher cost of content.
Market share loss continues for 3rd consecutive quarter. Mobile market share declined by 200 basis points y-o-y and 60 basis points q-o-q to 31.3%. Similarly for cable TV and broadband segments, despite higher equipment subsidies, subscriber growth has significantly slowed down compared to last year due to market saturation.