Month: February 2009
SFI – BT
SFI directors urge shareholders to accept SATS offer
DIRECTORS of Singapore Food Industries (SFI) have urged shareholders to accept the takeover offer by Singapore Airport Terminal Services (SATS), based on the advice given by independent financial adviser ANZ Singapore.
As an alternative offer is unlikely, ‘the offer appears to be fair and reasonable to SFI shareholders’, ANZ said in a letter dated Feb 19 to the directors.
SATS, a Singapore Airlines subsidiary, had made a pitch for a 100 per cent takeover of SFI after buying 69.61 per cent of the food company from Singapore investment company Temasek Holdings for $334.5 million. It offered to pay 93 cents per share, the same price it paid Temasek.
According to ANZ, SATS’ offer price represents a 4.5 per cent premium over the last traded price on Dec 1, 2008, being the date of the last full trading day prior to the announcement date and a 24.8 per cent premium over the last traded price on the reference date.
It also represents a premium to the volume-weighted average price (VWAP) over the 30-day, 60-day, 90-day and 180-day periods up to the reference date.
ANZ said it has also considered the possibility of an alternative offer from a third party at a significantly higher price, but as at the latest practicable date, there is no publicly available evidence of such an alternative offer. SFI management also advised that there have been no pre-emptive competing offers or proposals.
‘Accordingly, the directors recommend that shareholders accept the offer,’ SFI directors said in a circular despatched yesterday.
‘In addition, based on the advice of ANZ, the directors wish to remind shareholders that as an alternative to accepting the offer and in the absence of a competing offer, they may wish to consider disposing of their shares in the open market or otherwise, realising their shares at a higher value than the offer price (after deducting all related expenses) if there is an opportunity to do so,’ they said.
As at Feb 17, SATS received valid acceptances representing some 11.845 per cent of all SFI shares, bringing its total stake to 81.453 per cent.
The offer is unconditional in all respects and will close on March 9. SATS intends to make SFI a wholly owned subsidiary and not preserve its listing status.
SATS is entitled to make a compulsory acquisition of the remaining shares it does not own if it receives valid acceptances of the offer in respect of not less than 90 per cent of the offer shares (other than those already held by the offeror, its related corporations or their respective nominees as at the offer date).
SATS had said the purchase of the region’s largest integrated food supplier will help it achieve sustainable growth powered by the twin engines of airport operations and food services.
TELCOs – DMG
4Q08 in a nutshell
Hits & Misses. The Oct-Dec 08 period presented a mixed bag of results, with StarHub outperforming, SingTel coming in line, and M1 disappointing. All three showed improvements in the Singapore business and benefited from a moderating competitive landscape.
Balance sheet strong. Gearing appears high for the industry but should be no concern as it is a result of sound capital management over the past few years. Net debt/EBITDA (0.7-1.2x) and EBITDA/Interest (19-42x) are at healthy levels.
Mobile margins improve. EBITDA margins have improved 2.0 ppt QoQ as the telcos toned down on subsidies and advertising & promotions expenses. Prior to which, the mobile business was on a declining trend, no thanks to the red-hot competition as the telcos fought hard to gain market share with the introduction of Mobile Number Portability (MNP).
ARPU lower for broadband, but higher for Pay TV. SingTel and StarHub have been slashing prices (and upping the goodies) to lock in customers before the roll-out of the NBN, upping the ante for M1. Meanwhile, StarHub’s Pay TV ARPU rose 4% to S$57 per month despite competition from mio TV.
What to look out for in the coming months? The OpCo results will be out by the end of 1Q09, and we expect the contest to be close. The impact of NBN as well as retrenchments should also be felt by telcos this year.
Still stellar yields. Telcos still offer one of the best yields in the market. Among the three, only StarHub has given an explicit guidance on its dividend payout for the current year (S$0.18 per share). Both SingTel and M1 have instead stuck to a range. On average, the industry is yielding 6.9%, attractive compared to the market average of 5.5%. We maintain our OVERWEIGHT call on the sector, with StarHub as our top pick.
Transport – DBS
Fare cuts
PTC announced a fare reduction of 4.6%. This is inclusive of a 2cents fare rebate and a 10cents increase in transfer rebate. We were hoping for a 2-3% cut instead. The total cost to transport operators is $80m, of which savings from the Budget measures will cover $37m. We trimmed our profit forecasts by 2% – 6%. Our TP for SMRT is now $1.70. Downgrade to Hold on limited upside.
Overall fare reduced by 4.6%. The Public Transport Council (PTC) announced yesterday that there would be an overall bus and train fares reduction of 4.6% from 1 April 2009. The fare reduction comprises of a fare rebate of 2cents per trip and a 10cents in transfer rebates.
Total costs to operators is $80m. The fare reduction will costs the public transport operators about $80m over a period of 15 months from 1 Apr 09 to 30 Jun 2010. The 2cents fare rebate amounts to $52m, of which about $37m are savings from the Government Budget 2009. The 10 cents increase in transfer rebates is estimated to cost operators $28m.
Trimming profit forecasts. We trimmed our forecasts for SMRT (FYE Mar 10) and ComfortDelGro (CDG) by 6% and 2%, respectively. The adjustment to SMRT is larger as it derives almost all its revenue from Singapore. CDG, on the other hand, derives c.57% of its profit outside of Singapore.
Downgrade SMRT to Hold. Our TP for SMRT is adjusted down to $1.70 (still pegged to 14x FY10F earnings), equating to a 6% upside. As such, we downgrade SMRT to Hold. Whilst we like SMRT for its defensive features, we would prefer to accumulate at a lower level (c.$1.40).
Maintain Buy for CDG. We maintain our Buy call for CD for its international exposure and relatively limited impact from this round of fare cuts. Our TP for CDG is trimmed slightly down to $1.55 (from $1.57).
M1 – Phillip
FY2008 results
Net profit declined in FY2008. For FY2008, M1 reported operating revenue of S$800.6m (-0.3% yoy), profit before tax of S$185.0m (-4.9% yoy) and net profit of S$150.1m (-12.6% yoy).
There are three main revenue segments: mobile telecommunication services, international call services and handset sales. Mobile telecommunication services registered 0.2% increase in revenue to S$601.4m as the customer base increased by 10,000 and 96,000 from last quarter and last year respectively to 1,631,000. Postpaid revenue fell by 1.6% to S$529.8m while prepaid revenue increased 16.2% to S$71.6m. Moreover, international call services posted 7.9% rise to S$137.1m while handset sales fell by 18.4 percent to S$62.1m.
The introduction of full mobile number portability from 13 June 2008 resulted in increases in both its acquisition and retention costs. This caused the operating expenses to rise by 1.1% to S$608.9m. However, other revenue and finance costs dropped by 65.5% and 20% to S$1.0m and S$7.6m respectively. As a result, profit before tax fell to S$185.0m. Net profit decreased by 12.6% to S$150.1m in FY2008 mainly due to the absence of tax adjustments, which occurred in FY2007.
Profit margin. Net profit margin increased from 17.5% in 3Q FY2008 to 18.8% in 4Q FY2008 mainly due to lower staff costs. Based on a year-on-year comparison, it fell from 21.4% in FY2007 to 18.7% in FY2008 because of higher retention and acquisition costs.
The actual revenue and profit were 4.4% and 9.6 percent below our forecasts respectively. This could be attributed to the introduction of mobile number portability that resulted in higher costs.
Outlook for FY2009. M1 expects 2009 to be a challenging year due to the global financial crisis. It has submitted a bid as the Operating Company to build and operate the active infrastructure of the Next Generation National Broadband Network. The announcement of the winning bid is expected to be in 1Q 2009. Despite the crisis and barring unforeseen circumstances, it expects operations to remain stable. Moreover, its dividend policy for 2009 is to pay 80% of net profit after tax as dividend.
Chief Executive Officer (CEO) stepped down. In January 2009, M1 announced that its CEO, Neil Montefiore, would step down from 1 February 2009. The present Chief Financial Officer (CFO), Karen Kooi Lee Wah, would be the Acting CEO in additional to her duties as CFO while M1 searched for a new CEO. We believe that it would take three to four months before a new CEO could be appointed.
Maintain Hold with fair value cut from S$2.16 to S$1.67. Due to the worse-thanexpected results and the challenging outlook, we have reduced our earnings estimates for 2009 and 2010. Therefore, based on our valuation using the free cash flow to firm model, the target price is cut from S$2.16 to S$1.67. M1 remains a hold due to its limited focus on the domestic market. The dividend yield of M1 is 8.2%.