Month: July 2008
STEng – UOBKH
Closure of runway at Seletar will impact FY09’s earnings
Business Times has reported that Selatar runway will be redeveloped in November for a period of 18 months. The runway will be closed for 14 hours a day and there will be flight restrictions during this period. The move is part of a redevelopment plans to extend the runway to allow for a wide aircraft types to access the Selatar Aerospace Park.
Impact
ST Aerospace operates a Hangar at Selatar with a capacity for 13 narrow body aircraft and performs Boeing 757 conversions and other aircraft maintenance works. The company has clarified that some of the conversion and maintenance works will be shifted to Paya lebar and Changi hangars, while C130 military transport related works could be moved to Selatar. Even so, we believe that utilization rate at Selatar could fall in 2009 and that the other bases might not be able to fully take up the slack.
We estimate that Singapore operations accounted for about $600-650m in revenue in FY07. Given that works on the runway will only commence in November, there would be limited impact on FY08. However, FY09, could see at least see a 10% decline in revenue from Singapore operations. We have adjusted our FY09 net profit to reflect that but maintain our Hold recommendation for now.
SingTel – OCBC
Testing support
– SingTel has been on a decline since Oct 07 and is currently testing the support at the long-term uptrend line that connects the higher lows between Mar 07 and Jan 08.
– The price consolidation at the uptrend line could result in a mild rebound. Given the positive divergence displayed by the RSI and the oversold position of the stochastic indicator, we can expect a near-term rebound to the resistance level of S$3.60 – 3.68.
– However given the weak volume on days where bullish candlestick formations occurred over the previous trading week, and the downwards trending 50-, 100- and 200-day moving averages, we feel the upside is capped at this stage.
– After the mild rebound, we expect SingTel to re-test the support at the uptrend line. If this support fails to hold, we could witness the price slide towards the support at S$3.16.
SingTel – UOBKH
Intense Competition: Limited Upside in Investing in Parent
Competition in the telecommunications sector has remained intense with the launch of Mobile Number Portability (MNP). Singapore Telecommunications (SingTel) and StarHub both continued their aggressive marketing activities with high mobile phone subsidies while offering six months free subscription to re-contract as well as secure new customers.
High marketing and promotional expenses expected to continue. As highlighted in our strategy report, EBITDA margins for the Singapore telecommunications sector fell by 7.8% in 1Q08. The decline in margins for the sector is the largest on record due to aggressive marketing and equipment subsidies. We estimate equipment subsidies for SingTel (Singapore) at S$115m in 4QFY08, the highest level since 4QFY05. Cost of Sales (net of equipment sales) as a percentage of Services EBITDA was 58.1%, the highest level on record. We expect this to continue for the next two quarters given the continued high promotional activities.
Better off buying the associates? We estimate that the market has priced in a premium of S$0.63 for SingTel as a holding company at present, given the current market prices of its associates. Even if we were to use the highend of consensus estimates for SingTel and Optus of S$1.76, investors still pay a S$0.15 premium for SingTel as a holding company. Also, we estimate that investors are currently paying about 19x FY09PE for SingTel and Optus after stripping out the current market prices for SingTel’s associates, which is far higher than the industry average of 12-13x. Coincidentally, by imputing a PE of 13x for SingTel and Optus, we get a value of S$2.96 which is very close to our recommended entry level of S$3.00. Given the current disparity in value, investors can look to short SingTel and go long on the associates in
the short term.
Maintain HOLD recommendation, target price lowered to S$3.50 (previous S$3.76). We maintain our HOLD recommendation on SingTel and have lowered our target price from S$3.76 to S$3.50. We have adjusted our DCF valuation for SingTel and Optus from S$1.53 to S$1.28 as we have adjusted downwards our earnings for FY09, FY10 and FY11 by 4.4%, 1.8% and 1.4% respectively and adjusted our WACC from 8.5% to 8.9%. Together with our estimated dividend of S$0.125 for FY09, our recommended entry level for SingTel is below S$3.00.
SingTel – Phillip
Strong fundamentals
Recent price weakness. The share price of SingTel has dropped recently to S$3.51. This is in line with the fall in the equity markets due to increasing concerns over inflation and the sub-prime mortgage problems.
Portable mobile phone numbers. On 13 June 2008, mobile phone numbers become portable. This has led to the three telecommunications companies, SingTel, StarHub and M1, offering discounts and bundled services to existing and new customers. As a result, their marketing and retention costs will increase.
Discounts and bundled services. Both SingTel and StarHub have the advantage of offering discounts from the bundling of services including pay-TV, broadband and multiple mobile lines whereas M1 can only bundle services from multiple mobile lines as it does not have pay-TV and broadband services. However, M1 provides flexibility by allowing up to five family members to share unused talk time. For StarHub, it allows three family members while SingTel only allows parent and child to share unused talk time. Furthermore, SingTel and StarHub offer live Champions League and English Premier League matches on the mobile phones respectively
while M1 only provides MediaCorp shows on the mobile phones.
SingTel remains as the market leader. We believe that SingTel will be able to retain its market share and remain as the market leader in the Singapore market. We also expect strong profit contributions from Optus and the regional mobile associates. Fundamentally, this is a company that reports strong earnings and pay good dividends.
Ex-Dividend on 6 August 2008. Investors who hold the stock on 6 August will also receive final one-tier tax exempt dividend of S$0.069.
Maintain BUY recommendation, target price at S$4.01. We maintain the target price at S$4.01 and expect SingTel to report good earnings for 1Q FY2009. The recent price weakness presents a good opportunity to buy the stock. Based on its last done share price of S$3.51, there is potential upside of 14.2 percent.
SPH – DBS
A safe haven in uncertain times
Story: 3Q08 earnings were in line with expectations, as EBIT rose by 25% yoy to S$140m on revenue growth of 20% yoy to S$344m. YTD, EBIT is up by 25% yoy to S$388m on top line growth of 18% yoy to S$955m. PBT contribution from the Group’s publishing business was flat in 3Q08 due to higher staff costs but for 9M08, is up by 11% yoy, driven by an 8% increase in display and classified revenues. PBT contribution from the property segment grew by 155% yoy to S$103m as at 9M08, as the development of Sky@Eleven progressed. Meanwhile, treasury and investments saw a substantial decline of 71% yoy but is still ahead of our conservative forecasts.
Point: The Group is on track to meet our full year EBIT growth projection of 23% and whilst we are expecting a slow down in the next 1 or 2 quarters, we remain positive on Singapore’s longer-term growth (DBS Economics is forecasting 6.8% GDP growth in 2009). Even in the event that we are overly optimistic, SPH’s earnings are highly defensive given its monopoly on the publishing sector in Singapore and ownership of a premium retail asset like Paragon. The additional contribution from Sky@Eleven over the next 2 years will also help buffer any earnings downside risk for the Group.
Relevance: We continue to like SPH for its attractive valuation and as a defensive stock, backed by a net yield of >7.5% (premised on 90% payout of EBIT; in line with last 6 years), and re-iterate our BUY call. We have adjusted our sum-of-the-parts target price to S$5.75, as we have raised our forward valuation for Paragon to S$2.1bn (cap rate of 4.5%). The latest valuation for Paragon is S$2bn.