Month: February 2008
StarHub – BT
StarHub Q4 net profit down 31% at $98m
Revenue rises 14% despite pressure on margins and falling mobile market share
STARHUB yesterday posted net profit of $98 million for the fourth quarter ended Dec 31, down 31 per cent due to tax credit adjustments.
For the full year 2007, net profit was $330 million, down 8 per cent, on a 12 per cent rise in revenue to $2 billion. StarHub tax credits were $20 million and $77 million for 2007 and 2006 respectively.
Despite pressure on margins and falling market share in the all-important mobile phone segment, the second-largest telco in Singapore managed a credible 14 per cent rise in Q4 total revenue to $539 million and saw free cash flow jump 23.4 per cent to $67.2 million. Free cash flow for the full year grew 45 per cent to $483 million.
StarHub decided to reward shareholders with a higher fourth-quarter dividend of 4.5 cents, up from 3.5 cents, bringing the total for the year to 16 cents.
It further delighted shareholders by promising to raise dividend payout for 2008 to a minimum 18 cents.
The confident telco also said it expects full-year operating revenue to grow 10 per cent and capital expenditure to not exceed 12 per cent of operating revenue.
But for the first time, StarHub said it expects Ebitda – earnings before interest, tax, depreciation and amortisation – to decline to 33 per cent for 2008. It was 33.7 per cent in 2007.
Chief executive Terry Clontz said while he expects continued growth, pressures on margin will increase given the fierce competition.
Without naming its bigger rival Singapore Telecommunications, which has increased share of the lucrative mobile phone segment by aggressive marketing, Mr Clontz said ‘it only takes one to disturb the balance’, though he believes that in the long run, rational behaviour should prevail in a mature market such as Singapore.
During the quarter under review, StarHub’s mobile unit was as usual the top performer, with sales up 14 per cent to $275.6 million and 13 per cent to $1 billion for the full year.
Customer base grew 14 per cent to 1.76 million at end-2007 but StarHub’s market share eased to 31.3 per cent from 33.1 per cent a year ago.
Singapore’s mobile penetration has risen to 122.5 per cent fuelled by the rising number of foreign workers and SingTel has the lion’s market share in excess of 41 per cent.
The fight for market share has been intensifying since late last year when Singapore announced that mobile number portability (MNP) will be introduced in June.
StarHub, SingTel and third-place MobileOne have been spending more to retain customers ahead of June and the telcos’ marketing efforts will get more bitter in order to defend their customer bases ahead of the start of MNP.
Mr Clontz said while market share is important, his focus is on increasing shareholder value and cash flow.
He also noted that StarHub still has the highest average revenue per user per month at $26 for pre-paid and $79 for post-paid.
StarHub’s cable TV revenues grew 20 per cent for the quarter to $95 million as it managed to increase subscription prices to customers and sign on more viewers. Despite SingTel’s entrance into the pay-TV space, StarHub has managed to defend its position as the premier provider by cornering the exclusive broadcast rights to all the must-watch sports events, such as bagging this year’s UEFA European Championship football matches.
Customer base rose 4 per cent to 504,000 at end-2007, giving StarHub a household penetration of 45 per cent.
SingTel – BT
Will SingTel pull off another coup?
FOR its legion of shareholders, Singapore Telecommunications continues to keep faith – going by its latest quarterly results. The buoyant economy here and in the region has helped the telco deliver three straight quarters of double-digit sales growth as the momentum enjoyed by the juggernaut shows no sign of slowing down.
Bantering with some members of the media last week after posting the company’s third-quarter ended Dec 31, 2007, results, chief executive Chua Sock Koong said that with so many ’11 per cent’, it was hard to keep tab.
She was referring to the fact that group revenues grew strongly by 11 per cent to $3.83 billion, driven by an 11 per cent growth in the Singapore business to $1.25 billion and an 11.5 per cent rise to $2.58 billion in sales at Australian unit Optus.
Less than kind observers will say that well-managed large companies, particularly when they have the incumbent advantage, tend to do well when all is abuzz. Singapore grew a sterling 7.5 per cent in 2007 and created a record 237,000 jobs which drew in foreign workers likes bees to honey. SingTel, in particular, bagged the lucrative foreign worker mobile phone business.
At end-2007, SingTel Singapore’s 2.33 million mobile phone customers gave it a 41.46 market share.
The 600-pound gorilla should have little trouble meeting the supposedly momentous introduction of true number portability which will come in June. It is likely to be little more than an irritant for the telco which racks up billion-plus-dollar sales in a mere three months. Smaller rivals StarHub and MobileOne are likely to steer clear of overly aggressive tactics.
What, then, will exercise SingTel’s top managers in the months ahead?
Since Ms Chua took over the helm in April last year she has constantly given the same answer when asked where SingTel’s next acquisition is. Basically she said that SingTel’s focus remains in the region where it has significant know-how and it is also learning about new markets in Central Asia, the Middle East and Africa.
The best (relatively riskless) bet for SingTel would be to increase its stakes in several of the group’s associates which have contributed strongly to the bottom line and its burgeoning cash pile.
Associates made up 53 per cent of SingTel’s underlying net profit in the quarter under review. Cash dividends from them for the nine months to end-2007 was $1.02 billion, up 74 per cent from a year ago.
‘We have a strong balance sheet with significant flexibility for further investment,’ Ms Chua said last week.
At end-2007, total free cash flow was $2.65 billion, up 41 per cent.
The global financial market turmoil should lead to better priced opportunities. But telcos are unlikely to come cheap as it is one industry which is pretty recession-proof, said M1 chief executive Neil Montefiore last month.
SingTel’s three best performing associates – Indonesia’s Telkomsel, India’s Bharti and Thailand’s AIS, all No 1 operators in their respective countries – were acquired in the aftermath of the Asian financial crisis. As was Australian unit Optus.
Now if only SingTel could pull off a similar coup this time round as the world stands on the cusp of a slowdown. Still, its million shareholders who have grown used to the group’s stream of healthy payouts should sleep easy, bear markets notwithstanding.
SingPost – BT
SingPost appoints CBRE as consultant for HQ building
SINGAPORE Post is understood to have appointed property firm CB Richard Ellis to advise it on exploring options for the listed group’s headquarters building next to Paya Lebar MRT Station.
CBRE’s appointment followed a beauty parade that SingPost is understood to have conducted late last year to select a property consultant, as reported by BT yesterday.
Property industry sources told BT yesterday that the job was clinched by CBRE, which, however, has declined to comment on its appointment.
In its third-quarter results statement last month, SingPost said that it is ‘continuing to review its non- core businesses, and is also exploring opportunities in respect of SingPost Centre, including unlocking the value of SingPost Centre’.
Analysts have estimated the building’s value at around $1,000 to $1,300 per square foot of existing net lettable area, assuming full-commercial use, which would reflect a total quantum of between $1 billion and $1.3 billion. The 14-storey building is on a 352,389 sq ft site, with a remaining lease of about 73 years. It has a total net lettable area of about 1 million sq ft, of which about half is currently occupied by SingPost for its corporate office and operations including the mail processing centre.
The rest of the property is leased to a mix of office and retail tenants including HSBC Insurance, NorthWest Airlines, Symantec Corporation, Prudential (whose lease expires this year), This Fashion, Barang Barang, NTUC FairPrice and Kopitiam.
SingPost – DBS
Potential HQ Sale is the upside
Story : According to Business Times headlines today, Singpost may sell its HQ building which is estimated to be worth S$1.0b – S$1.3b. Although the company declined to comment, if this comes true, the sale should result in a bumper dividend yield.
Point : Investors can expect dividends of 23-45 cents per share if HQ sale takes place, assuming 50%-80% payout of sales proceeds. We think that that 20%-50% of sales proceeds could be used to make acquisitions to drive growth, which management highlighted recently.
Relevance : Upgrade to BUY with a target price of S$1.35 based on breakup valuation. We prefer Singpost for its stable operations with over 6% in regular dividends and HQ sales as potential catalyst. Even if HQ sales do not materialize in the near term, downside risk is limited due to its healthy dividend yield.
Potential value of HQ building is 45-57 cents per share. The book value of HQ building is around S$300m. Assuming that HQ building can be sold for S$1.0-1.3b, it would result in divestment gains of S$700m-S$1b. With 18% tax rate on divestment gains, the cash generated from sale of HQ works out to be S$874m – 1120m or about 45 – 57 cents per share.
Fair value of Singpost without HQ building is 85 cents per share. We need to take out the rental income of S$21.5m from HQ and add the rental expenses of S$21.5, which Singpost would have to pay for its own office space. As a result FY09 net income would be lowered by 28% to S$110m. If we value this business at similar 15x earnings, it works to be S$1.65 billion or 85 cents a share.
Fair value of Singpost with HQ building. If we add the two parts together, the total value of the company would be S$1.30 – S$1.42 per share.
SingTel – OCBC
Affirms FY08 guidance, upgrade to BUY
Cost pressures remain in 3Q08. Singapore Telecommunications Ltd (SingTel) reported a decent set of 3Q08 results. Revenue rose 11.4% YoY (+3.9% QoQ) to S$3,825.0m, driven by revenue growth of 11% in the Singapore business and the A$ appreciation of nearly 8%, although PATMI slipped 4.2% YoY and 3.7% QoQ to S$952.3m. However, underlying profit jumped 21.7% YoY and also inched up 2.2% QoQ to S$931.4m, once we exclude the exceptional items, albeit off the 5.2% QoQ pace seen in 2Q08. Operational EBITDA rose 7.5% YoY and 1.1% QoQ to S$1,135.5m, but margins have come off further to 29.7% in 3Q08, versus 30.4% in 2Q08 and 30.8% in 3Q07, no doubt reflecting continued cost pressures in Singapore and Australia as we had expected.
Associates did better in 3Q08. In addition, we also saw good growth from its regional associates, where their collective pre-tax contribution grew 31.2% YoY and also 4.8% QoQ. This time around, the star performer was Globe Telecom in Philippines, which saw pre-tax profit surged 55.5% YoY and 14.1% QoQ to S$81.0m, boosted by both a 7% appreciation in the PHP against SGD and also robust subscriber growth. For the quarter, SingTel also saw a sharp 53% YoY (+11% QoQ) jump in its mobile subscribers to hit 171.5m, with the bulk coming from its latest investment in Pakistan’s Warid Telecom. Management expects to continue to aggressively grow its network and customers there, as it is a market with low penetration rate.
Affirms its FY08 guidance. Going forward, management also affirmed its previous FY08 guidance and continues to expect revenue from Singapore to grow at single-digit rate and Australia to grow along with the market, with pre-tax earnings growth from its regional mobile business at doubledigit level. And as the 9M08 revenue of S$9,992.8m (+10.9%) already met 83.2% of our FY08 estimate and the underlying profit of S$2,712.9m (+16.3%) met 80.4% of our forecast, we are bumping up our estimates by around 4.4%. However, we have left our FY09 estimates largely unchanged, as margin compression and high acquisition/retention costs may negate subscriber growth.
Upgrade to BUY. In line with its better operational performance, we have also revised up our fair value from S$3.91 to S$4.35. As there is now nearly 11.6% upside from here, we upgrade our call to BUY.