Month: January 2009
SFI – BT
SATS shareholders okay SFI takover
General offer for all SFI shares triggered, lifting total bill to $509 million
MINORITY shareholders of Singapore Airport Terminal Services (SATS) have given their company the nod to buy a controlling stake in Singapore Food Industries (SFI) from Temasek Holdings.
Almost 70 per cent of minority votes cast at a meeting yesterday were in favour of SATS buying 359.7 million SFI ordinary shares equivalent to a 69.6 per cent stake. The offer price is 93 cents a share – a total of $334.5 million.
The move will trigger a general offer for all 157.1 million SFI shares, which could lift the total bill to $509 million. SATS chief executive Clement Woon said SFI shareholders will get the offer document within two weeks.
‘We only needed 50 per cent plus one vote to get this through, but what we got is overwhelming support,’ he said. ‘There is still a lot of work to do. We will move ahead with the general offer first, then start work on our integration plan.’
SATS’ controlling shareholder Singapore Airlines, with a stake of just over 80 per cent, abstained from yesterday’s vote, leaving minorities to decide.
SATS needs to secure at least 90 per cent of SFI’s shares to de-list the food company and 100 per cent for total control.
What if it does not get beyond 90 per cent? ‘We are not a financial investor,’ said Mr Woon. ‘We are in this for the synergy – to bring two companies together to create value for shareholders. Of course, we’d like a complete takeover.’ He declined to say how SFI, especially its leadership structure, will be restructured after the takeover. ‘We’ll work with the board and management when the time comes.’
SFI has appointed ANZ Singapore its independent financial adviser to counsel directors on the offer.
About 600 SATS minority shareholders voted on the takeover at a 9.30am meeting at the Hyatt Hotel yesterday. Those against the deal said the price is too high and the timing is bad.
At 93 cents a share, SATS is buying SFI at a historical price/earnings multiple of 15 times and a price/book ratio of 3.2 times. Also, the acquisition comes as the UK market – which accounts for more than two-thirds of SFI’s revenue – faces a nasty and drawn-out recession.
But according to Mr Woon, a premium must be paid for control. And as for timing, he said: ‘There is no better time. The probability of success of an acquisition is higher if it is done in a downturn.’
SATS believes that buying the region’s largest integrated food supplier will help it achieve sustainable growth powered by the twin engines of airport operations and food services. It also points out that SFI is a stable business with Singapore government contracts, such as supplying food to the armed forces, and access to the national food security programme.
Additionally, through SFI’s presence in Europe and the UK, SATS sees potential to expand into European airline catering. SFI’s UK business has been growing 14-19 per cent a year.
SingTel – DB
Taking stock: FX, the Sing/Au valuation & the NAV discount
FX trends will hurt 3Q09 results but Buy for increasing defensiveness
The S$ appreciation against STel’s component currencies towards end-2008 will drag on the forthcoming 3Q09 results and may impact near-term sentiment. But a stronger S$ is already in our FY09e estimates and more importantly, DB expects S$ weakening from current levels against most of STel’s key currencies which will be beneficial. Furthermore, STel trades at a >10% NAV discount and with Sing / Australia at 11-12x fwd PE, we view STel as increasingly defensive. Maintain Buy.
Recent FX trends will hurt STel’s 3Q09 results but FX outlook improving
Toward end-08 the S$ appreciated significantly against the A$, Indian rupee and Indonesian rupiah which will impair the forthcoming 3Q09 results. For example, we estimate the 3Q09 translation rates would have reduced 2Q09 non-S$ contributions by approx -10%. But FY09e FX rates are trending in-line with DBe and importantly, we expect near-term S$ weakening against STel’s key currencies which will be beneficial for earnings and valuation. As such, although FX will again be in focus ahead of the 3Q09 results, the FX outlook may in fact be improving.
And STel still attractive given reduced core valuation and NAV discount
Furthermore, with Sing/Australia currently valued at 11-12x fwd PE (significantly de-rated from 2008 highs), future STel price downside appears increasingly limited – we highlight the strong inverse correlation between the SG/AU fwd PE and subsequent STel price action. In addition, STel still trades at an NAV discount which also limits downside from current levels. As such, we view STel as increasingly defensive (unlike for much of 2008) and recommend Buy.
Maintain Buy despite 3Q09 FX trends with S$3.27 target price
Our S$3.27 SOTP TP is based on S’pore S$0.88/share (DCF: 7.1% WACC, 0% g), Optus S$0.78/share (DCF: 9.6% WACC, 1% g), DB covered listed Assocs at TP, non-DB covered listed Assocs at market value and investment value for others. We have (very) slightly increased our TP to S$3.27 from S$3.23 to reflect changes to DB’s FX forecasts (some S$ weakening expected). Risks to our Buy rating include adverse FX trends, competition and an emerging market sell-off.
M1 – OCBC
Stable Operations in 2009
4Q08 results mostly in line. MobileOne (M1) reported its 4Q08 results on Friday, with revenue down 5.9% YoY (down 1.0% QoQ) at S$194.7m, just slightly ahead of our S$190.6m forecast. While net profit fell 3.7% YoY to S$36.6m, it was up 6.1% QoQ and was also ahead of our S$33.6m forecast. One reason for the slightly better-than-expected sequential earnings was the improvement in EBITDA margin on service revenue from 41.6% in 3Q08 to 44.0%, as it had been less aggressive during the holiday period (EBITDA margin was 40.9% in 4Q07). According to management, this was because it had shifted its promotions to the 2nd and 3rd quarter following the launch of true mobile number portability in June 08.
For the full year, revenue was flat at S$800.6m, while net profit fell 12.6% to S$150.1m, both pretty close to our S$796.5m and S$147.1m estimates. However, the street may be slightly disappointed as consensus was looking at a net profit of S$153.1m on S$815.8m revenue. M1 declared a final dividend of S$0.072/share, bringing the total dividend to S$0.134 (versus S$0.108 for FY07), or 80% of its net profit as promised.
Stable operations expected. Although M1 is mindful of the current economic climate and the credit crunch, it believes that its operations should remain stable; service EBITDA margin will remain around 43-44%. It intends to spend around S$100-120m as capex this year. It also aims to maintain its payout ratio of 80%. However, we are a little less sanguine as we expect M1’s churn to remain high, hampered by its lack of bundling abilities. At such, we are sticking to our original forecast of 2.7% drop in revenue and a 4.1% drop in earnings; retention and acquisition costs may remain high as we believe M1 may need to work a little harder to retain customers versus its peers.
Maintain BUY with S$2.12 fair value. Meanwhile, the ongoing search for a new CEO may be another concern but we believe that there should be no change to its near- to medium-term strategy of M1 becoming a multiple-play operator via the NGNBN (Next-Gen National Broadband Network). And against the deepening economic backdrop, we still like M1 for its defensive and strong free cash flow-generating business. As such, we maintain BUY and S$2.12 fair value.
M1 – DBS
Cost savings help earnings
M1’s 4Q08 results were better than we expected, mainly due to lower staff cost. It declared a final 7.2 cents, as expected, and management intends to maintain the 80% payout ratio for FY09F. Management also guided for similar earnings for FY09F, as it remains cautious of the impact of a possible recession on the population of foreign workers in Singapore.
Better bottomline but weaker topline. 4Q08 net profit of S$36.6m (+6% q-o-q, -3% y-o-y) exceeded our S$32.6m forecast, due to S$6m savings in staff cost resulting from lower bonuses. But revenue of S$195m (- 1% q-o-q, -6% y-o-y) was short of our S$202m forecast due to lower handset sales and slightly lower ARPU, which could be attributed to the economic slowdown.
Competition seems to move in the right direction. Average retention and acquisition costs tumbled from 3Q08 levels. Churn rate also fell q-o-q to 1.7% from 1.8%, indicating competition is getting more rational. We expect competition to ease in 2009 as operators get into cost control mode, but FY09F earnings might soften as easing competition may not be sufficient to offset the impact of recession.
Fair value at S$1.57. This is pegged to 10x FY09F PER, based on its historical PE range of 8x-13x. Given its 12% free cash flow yield, dividends should be sustainable at 8.5% yield. FY10F earnings is expected to grow y-o-y due to c.S$20m cost savings from its backhaul network. With 0.7x net debt to EBITDA ratio, the lowest among Singapore telcos, M1 will have ample room for capital management when credit conditions improve. Maintain BUY.
M1 – BT
M1’s Q4 net profit dips 3.4% to $36.6m
Telco paying a final dividend of 7.2 cents, bringing its full-year payout to 13.4 cents
MOBILEONE yesterday reported a 3.4 per cent decline in net profit to $36.6 million for the fourth quarter of 2008 as competitive pressure started easing after months of intense rivalry.
Q4 sales slid 5.9 per cent to $194.7 million, while earnings per share came in 2.4 per cent lower at 4.1 cents for the period. M1’s Q4 profit was higher than the $35 million median estimate from five analysts polled by Bloomberg.
For the full 2008, the country’s smallest operator saw its net profit dive 12.6 per cent to $150.1 million from the preceding year. Sales for the year dipped 0.3 per cent to $800.6 million.
M1 proposed a final dividend of 7.2 cents, bringing its full-year payout to 13.4 cents or around 80 per cent of its 2008 profit. Despite the adverse economic conditions, the company expects to maintain a similar dividend payout ratio in 2009.
The firm’s full-year profit decline was due to higher customer retention costs with the introduction of mobile number portability (MNP) in June last year, said Karen Kooi, M1’s acting CEO and chief financial officer.
Average retention cost per post-paid customer for 2008 was $148, against 2007’s $132.
In addition, higher international traffic expenses also contributed to the drop, Ms Kooi told reporters and analysts at its results briefing yesterday. She was chairing the conference in place of outgoing M1 chief Neil Montefiore, who is set to leave the company next month after 12 years of service.
In response to MNP, the operator had introduced more competitive subscription plans which resulted in lower margins, while stepping up its marketing efforts to attract and retain customers but these initiatives tapered off in the tail end of 2008.Customer acquisition cost in Q4 fell to $131 from $162 in the preceding quarter and retention cost also dropped from $155 in Q3 to $135 in the last quarter of 2008.
‘Throughout the festive season, there were more rational promotions from the three telcos. The campaigns stayed clear of providing free monthly subscriptions, which wreaked havoc on margins earlier, to focus on deeper handset subsidies or rebates for monthly subscriptions without equipment,’ CIMB said in a research note.
M1 added 10,000 new subscribers in Q4, most of whom were prepaid customers, to take its user base to 1.63 million. However, its churn rate, or the percentage of subscribers leaving M1, rose to 1.7 per cent from 1.2 per cent a year earlier.
‘We are not going out aggressively to take market share,’ Ms Kooi stressed. However, she reiterated the company’s intention to diversify beyond mobile services into Internet provision when the upcoming Next-Gen National Broadband Network is completed in 2012.
In the meantime, M1 has started offering fixed broadband by leasing infrastructure from StarHub but it did not reveal the take-up rate for these services.
‘We are not actively pushing the fixed-line broadband just yet and we have not started bundling,’ Ms Kooi said, adding that M1 is using this arrangement as a dipstick for its broadband foray in future. M1 shares rose 1.3 per cent to close at $1.52 yesterday.