Month: February 2009
SingTel – BT
SingTel unit Globe’s earnings down 15% last year
WEAK market demand and foreign exchange losses dragged down last year’s earnings of Singapore Telecom’s listed Philippine unit Globe Telecom.
In a report to the Philippine Stock Exchange yesterday, Globe said consolidated net income slumped 15 per cent to 11.3 billion pesos (S$362.7 million) due to flat revenue of 62.9 billion pesos. Core net income, which excludes forex gains and losses, was down 14 per cent to 11.8 billion pesos.
Globe, SingTel’s joint venture with listed Manila conglomerate Ayala Corp, blamed the weak economic environment, intense competition, forex and mark-to-market losses and other adverse factors, including one-time bond redemption costs, for its poor earnings.
Overall, revenue from wireless services fell one per cent to 55.6 billion pesos, while that from fixed lines edged up 7 per cent to 7.3 billion pesos.
Though interest expenses were lower compared with 2007, this was offset by higher net forex losses arising largely from the revaluation of the company’s US dollar-denominated debt.
Analysts said Globe’s revenue could have sunk deeper if not for its strong performance during the holiday season in the fourth quarter of last year. Q4 revenue surged 5 per cent to 16.3 billion pesos – Globe’s highest quarterly revenue to date – as it launched new mobile and broadband services at competitive rates.
‘Our strong topline performance in Q4 enabled us to regain some of the ground that we lost in the early part of the year,’ said Globe president and CEO Gerardo Ablaza.
He believes the good Q4 results have given Globe, the country’s second-largest telco, the momentum to face the challenges in the telecom market this year.
‘We are encouraged by the resilient growth of both our mobile and broadband subscriber base, and remain committed to delivering products and services that serve the needs of our subscribers at affordable prices,’ he said.
Globe, whose stock closed 1.2 per cent higher at 850 pesos yesterday, posted a 22 per cent rise in wireless subscribers to 24.7 million last year. Broadband subscribers almost doubled to 234,000.
Mr Ablaza said demand for Globe’s fixed and mobile broadband services has been ‘very positive,’ exceeding expectations. It expects broadband growth to continue this year, with the increasing affordability of the service and data devices.
‘For 2009, our objective is to build on the earnings of 2008, sustain our Q4 gains and step up growth for all our businesses,’ he said. ‘While we will adapt to changes in near-term demand with the slowing economy, we will continue to invest and set our sights on the long term.’
SingPost – DBS
Resilient earnings despite slowdown
Singpost announced core net profit of S$36.6m (flat y-o-y, – 2.4% q-o-q) that was c.10% above our forecast, due to higher rental income from a larger lease area following the refurbishment of its post offices. Meanwhile, the impact of the global slowdown was visible in higher provisions and slower topline growth. An interim 1.25 cents DPS was declared, as expected.
Budgetary benefits expected to offset potentially lower rental income. The job-credits and corporate tax reduction would benefit its bottomline by about 3%. But Singpost’s rental income could drop, as one-third of its leases are due for renewal every year.
Impact of slowing economy already captured in our estimates. Singpost was able to maintain flat revenue during the Asian financial crisis in 1997/98, while revenue fell only 2% during the SARS crisis in FY04. We expect a 3% decline in Singpost revenue for FY10F.
Competition not a major concern. Singpost has launched new initiatives in its business mail (22% of total revenue) and international mail (24% of total revenue) segments. These initiatives should mitigate the leakage in Singpost’s revenues, given that its competitors – typically small companies – would be hit harder by the slowdown.
Raised earnings, maintain Buy. We raised our FY09F earnings by 2.5%, but there is no change to our FY10F estimates. Maintain BUY with a revised target price of S$0.88, based on 12x FY10F PER (historical PER range is 15x- 18x) as we roll forward our valuation window. The stock offers a minimum annual DPS of 5 cents (6.5% yield) that is payable quarterly.
SingPost – OCBC
Resilience is the word
Results in line with expectations. Singapore Post (SingPost) reported creditable results amid a challenging environment, with revenue increasing 1.6% YoY to S$124.0m and net profit declining marginally by 0.5% to S$36.7m in 3Q09. This is in line with our expectations as both YTD revenue and net profit comprised 75% of our FY09 estimates. Revenue grew in all three business segments, with retail enjoying 5.5% growth, followed by logistics at 2.1% and mail at 1.5%. Rental and property-related income grew by 34% due to higher rental income from the Singapore Post Centre (SPC) and contributions from leasing of space at re-purposed post office
buildings.
Slowing economy, but there are things to cheer about too. The slowing global and domestic economy will undeniably impact SingPost’s financials, and indeed the group’s 3Q08 selling expenses rose by 43.5% YoY as higher provisions were made for doubtful debts. However, several measures unveiled by the recent Budget such as the Jobs Credit Scheme, reduction in corporate tax and property tax rebates will benefit SingPost as well. We are also seeing very proactive measures by the group to counter the downturn, such as greater cost containment, new services to spur revenue, as well as continued measures to re-purpose post offices.
Cost management is the key. The group stepped up on cost management measures in the last quarter, such that all categories of costs except selling expenses moderated in growth. Labour and related expenses grew by 4.9% YoY compared to 7.2% in 2Q09 as SingPost kept a lid on temporary and contract labour costs, which is expected to moderate in the coming quarters. Tighter cost control in other areas such as promotional and marketing activities also resulted in lower expenses.
Maintain BUY. The slowing global and domestic economy is probably the main concern for most stocks, including SingPost, but the defensive nature of the group’s business means it will outperform the rest in a deteriorating and uncertain environment. Having taken into consideration weaker economic conditions and factors cushioning the decline in the group’s financials, we are maintaining our estimates and therefore keep our fair value estimate of S$0.93. As such, we maintain our BUY recommendation for SingPost. A quarterly dividend of S$0.0125 per share will be paid, sticking to SingPost’s dividend policy of minimum S$0.05 per share a year, implying at least a 6.5% yield.
SingPost – CIMB
Lacking catalysts for now
• In line. 3Q09 core earnings of S$36.6m (-0.5% yoy) were in line with consensus and our estimates, accounting for 24% of our full-year estimate. Revenue grew 1.6% yoy to S$124.0m. 3Q09 dividend of 1.25 cts/share met our forecast.
• 3Q09 sales up 1.6% yoy, driven by mail (+1.9%), logistics (7.2%) and retail (+11.5%). As expected, overall revenue growth was weak due to the poor economic environment. Mail revenue grew on higher volumes and increased hybrid mail contributions. Logistics revenue growth was attributed to higher warehousing, fulfilment, distribution and shipping revenue, offset by lower Speedpost revenue. SingPost continued to focus on controlling operating expenses, in particular labourrelated expenses.
• Well-positioned to defend its position. While the liberalisation of the basic mail service market in Apr 07 has increased competition, we believe SingPost is still in a strong position to defend its position as the leading postal service company. SingPost continues to hold a monopoly over stamp issues and is the only postal service company with the master-door key to all letterboxes in private apartments and HDB estates. Long term, we believe that liberalisation would have a limited impact on SingPost as the group still benefits from a much stronger brand name and an entrenched retail network, compared with the four other entrants.
• Cutting earnings by 1-7%. We have cut our FY09-11 earnings to reflect the impact of the slowing economy on business mail, express mail and retail revenue.
• Downgrade to Neutral from Outperform; lower DDM-derived target price of S$0.88 (previously S$0.94). SingPost’s share price has risen more than 18% since our upgrade last quarter. We believe that the positives have been reflected in the share price. Re-rating catalysts could include regional growth opportunities and a bigger share of the express mail market, which is still dominated by the international players. Its share price is likely to be supported by its defensive business model.