Month: November 2008
SingTel – CIMB
Profit warning
Downside risk to our conservative forecast
SingTel warned that 2QFY09 EBITDA will be affected by S$27m in Singapore and A$44m in Australia from subsiding 170,000 iPhones. SingTel also said that the weaker regional currencies will impact SingTel’s results, and Telkomsel’s September quarter results were below expectations.
Approximately S$67m in currency translation gain will be reported, which arose from SingTel Australia Investment reducing it’s A$ denominated share capital by A$249m in 2QFY09. The gain is the difference between the amount of share capital returned by SAI and the historical cost of investment in S$.
Comments
2% pt EBITDA impact in 2QFY09.
While we were not surprised at the profit warning as our forecast is already below SingTel’s earlier guidance, the quantum of subsidy was a surprise. We had warned of a disappointing 2QFY09 results on iPhone-related expenses in Singapore and weak associate contributions. We estimate an EBITDA impact S$82m based on the average S$/A$ exchange rate in 3Q08, which works out to be about 2% of SingTel’s FY09 EBITDA margin and 1.6% of net profit, or 7% of 2QFY09 EBITDA and 6.5% of net profit.
2Q09 net profit expected to decline qoq. Based on the above disclosure and Telkomsel’s 3Q08 results, we now think SingTel’s 2QFY08 core net profit may fall about 5-7% qoq or 11-13% yoy to S$800m-820m vs our previous estimate of flattish qoq or $870m-900m. This is on the back of a 0.6% qoq decline in revenue to about S$3.75bn and 2% pts qoq decline in EBITDA margin.
Downside risk to earnings estimate. We think there is downside risk to our alreadyconservative forecast. Our FY09 and FY10 forecast is 10% and 13% below consensus, due lower assumptions for Singapore, Australia and regional currencies/associate contribution.
Impact on StarHub and MobileOne? Based on the above data, we estimate SingTel subsidised S$480 per iPhone on average. MobileOne (M1 SP, Outperform, Target price: $2.24) or StarHub (STH SP, Underperform, Target price: S$2.30) are expected to offer the iPhones by year end when SingTel’s exclusivity ends, and we think they will incur similar subsidies as SingTel. As such, we see further pressure on margins of both telcos thanks to higher subscriber acquisition and retention cost from the iPhone.
Valuation and recommendation
Maintain UNDERPERFORM with a SOP-based target price of $2.37. Key downside catalysts are:
• aversion towards emerging market assets which SingTel has exposure to, namely Indonesia, India and Pakistan,
• competition concerns in Singapore and Australia,
• volatile currencies, and
• earnings disappointment.
Singtel will be announcing its 2QFY09 results on 12 Nov.
STEng – BT
ST Engg posts 2.7% rise in Q3 earnings to $128.9m
Turnover up 11.8%, of which 66% were commercial sales
SINGAPORE Technologies Engineering has reported a 2.7 per cent increase in net profit to $128.9 million for its third quarter ended Sept 30, as turnover rose 11.8 per cent to $1.38 billion.
Commercial sales accounted for 66 per cent ($918 million) of turnover. Earnings per share were 4.31 cents, up from 4.24 cents a year earlier.
The group’s order book grew to $9.54 billion from $9.29 billion at June 30, with $1.25 billion of orders to be delivered in the current Q4. At end-September, cash, cash equivalents and funds under management totalled $1 billion.
For the nine months to Sept 30, profit grew 4 per cent to $371.3 million on 6.5 per cent growth in turnover to $3.99 billion.
ST Aerospace, which contributed 48 per cent of group profit, saw net profit slide 10 per cent to $61.6 million, despite revenue rising 13 per cent to $501 million.
The drop in profit was due to foreign exchange losses arising from the US dollar, higher passenger-to-freighter aircraft prototyping costs and higher depreciation resulting from investments in new capabilities and capacity.
In addition, Sterling Airlines and Essential Aircraft Maintenance Services – customers of ST Aerospace subsidiary ST Aerospace Solutions (Europe) – filed for bankruptcy on Denmark. The contract to support
Sterling Airlines was worth about $45 million over three years from 2007. And the impact of the bankruptcy filings on pre-tax profit could be $10 million ‘on a conservative basis’.
ST Aerospace president Tay Kok Khiang said the company is in a good position to weather a short-term slide in the aviation industry thanks to its strong customer base, diverse offerings and market position.
Q3 turnover for the ST Engineering’s land systems sector was $333 million or about 25 per cent higher year-on-year, helped by stronger exports by its munitions and weapons group.
But net profit plunged 20 per cent to $13 million, dragged down partly by a poorer performance in the auto segment.
ST Electronics contributed revenue of $298 million, a jump of 26 per cent from Q3 2007, as its three business groups – large-scale systems, communication and sensor systems, and software systems – completed various projects. But net profit was 2 per cent lower at $21.7 million as margins fell.
Although net profit for the marine sector was 7 per cent higher at $16.5 million, revenue took a hit, dropping 20 per cent to $205 million in Q3 from $256 million a year earlier. The stronger profit reflected a favourable sales mix and lower expenses, while weaker demand for conversion services contributed to the fall in revenue.
‘Barring unforeseen circumstances, under a weaker global economic environment, ST Engineering still expects to achieve modestly higher turnover, though a lower profit before tax and a marginally weaker Patmi (profit after tax, minorities and interest) in FY 2008 than FY 2007,’ ST Engineering said in a statement.
SingTel – DBS
Worse than expected Telkomsel results and weak Singapore, Australia
Story: SingTel could report 2QFY09F net underlying profit of S$800m (-13% y-o-y, -8% q-o-q) on Nov 12. Full year street estimates suggest that the market is expecting flat to single digit earnings growth. So a 13% earnings decline could trigger a series of earnings downgrades on the street.
Point: We wish to highlight three key points.
Major disappointment from Telkomsel. Compared to our expectations of single-digit earnings growth, Telkomsel reported a 20% y-o-y drop in 3Q08 earnings in its pursuit of market share. This coupled with a weak IDR (down 8%) imply that its earnings contribution would fall 25% y-o-y. We now estimate overall associate contribution would fall 5% y-o-y in 2QFY09F, instead of registering 3% growth.
Our FY09F and FY10F earnings are 12-16% below consensus. As per management iPhone launch has an adverse impact on 2QFY09 EBITDA of S$27m in Singapore and A$44m in Australia. Overall, we lower our FY09 and FY10 group earnings by 3.4% and 5.1% respectively.
Downside risk to earnings if forex situation does not improve. Every 10% decline in the AUD, INR or IDR should lower group earnings by c.2% each. Our analysis indicates if forex rates stay at current levels, SingTel’s FY09F earnings could be 2%-3% lower than our current projections.
Relevance: Downgrade to FULLY VALUED, with SOTP-based revised target price of S$2.34. We lower our valuation for Telkomsel and use current market prices for listed associates instead of target prices in view of potential earnings disappointments. We advise investors to accumulate SingTel towards our trough valuation of S$2.02.
Singtel – BT
SINGAPORE – Singapore Telecommunications Limited, Southeast Asia’s largest telco, said on Tuesday that the launch of iPhone 3G will hurt its earnings in the fiscal second quarter ended September.
SingTel, which owns Optus in Australia and stakes in several mobile phone operators across the region, said it had together with its associates sold over 170,000 iPhone packages during the quarter following their launch in July and August.
‘In line with the group’s policy, mobile subscriber acquisition and retention costs are expensed immediately on activations… Consequently, the successful iPhone 3G initiative will have a dilutive impact on earnings and margins in the near term,’ SingTel said in a statement.
In Singapore, this will reduce earnings before interest tax, depreciation and amortisation by about $27 million (US$18.26 million). In Australia, the drop in EBITDA will be approximately A$44 million (US$29.95 million).
SingTel also said its Indonesian associate Telkomsel had on Oct 31 issued a revised outlook and is now looking at low-single-digit growth in operating revenue as well as a decline in margins by about 5 per cent.
The Singapore firm did not say how the launch of iPhone will hurt results at its Indian and Philippine associate firms Bharti and Globe .
SingTel is scheduled to report its second quarter earnings on Nov 12.
SMRT – DMG
Ridership growth remains key positive
SMRT reported 2QFY09 net profit of S$42.6m, up 7.7% YoY, in line with expectations.
MRT is key contributor to operating profit. MRT revenue rose 13.7% YoY to S$122.8m, and accounted for a 54% revenue share. MRT average daily ridership was up 13% YoY to 1.44m rides. Higher electricity costs however, led to a slower 10.5% YoY increase in MRT operating profit, though this still accounted for a sizeable 70.5% share of total operating profit.
Bus operations was lacklustre. Bus average daily ridership grew 5.8% YoY to 809k rides. However, diesel costs rose 54.1% YoY to S$15.2m, and this contributed to bus operations recorded an operating loss of S$0.9m, versus the S$0.8m gain in 2QFY08.
Fare hike will drive revenue going ahead. The Public Transport Council has approved an average 0.6% fare adjustment on SMRT’s bus and train fares effective 1 Oct 08. Overall, SMRT expects to yield an additional S$3m in fare revenue over the next 12 months from 1 Oct 08.
Commercial space rental remains a star performer. Commercial space rental revenue surged 44.7% YoY to S$14.2m. Though this accounts for only 6.3% revenue share, its share of operating profit is a sharply higher 20.3%. Total lettable space has risen 11.7% YoY to 26,592 sqm.
Earnings forecast adjustments. We raised our FY09 net profit forecast by 7.1% to S$154.8m, due to expectations of higher revenue for 2HFY09. Our FY10 net profit forecast is also raised marginally by 2.6%. We are assuming CY09 average WTI price of US$70/barrel, which is lower than CY08’s US$100. However, SMRT’s 6-mth electricity contract till Mar 09 is at a higher rate (30% higher than the previous 6-mth contract), and therefore the benefits of lower electricity cost will only flow through from FY10 onwards. We have also factored in increased costs with the commencement of the Circle Line revenue service in mid-2009.
SMRT declared an interim dividend of 1.75S¢/share. We are forecasting FY09 dividends of 8.7S¢, based on a 85% payout ratio (versus 78% in FY08). This gives a dividend yield of 5.6%. As the recent market collapse has led to yields of many equities rising sharply, this 5.6% now appears less attractive. The market risk premium has risen from 9.46% in early Oct 08 to the current 10.78%. As a consequence, we are cutting our price target to S$1.65, from the previous S$2.03. Maintain NEUTRAL call on SMRT.