Month: July 2009
M1 – CS
Non-deal roadshow feedback – more ready for NGN than the market expects
● CEO Karen Kooi explained to investors in the UK and the US that M1 intended to maintain revenue market share, using product innovation (e.g. Take 3) and, post-NGN, bundling with broadband.
● However, profitability will also be monitored carefully, and cost control remains a key area of focus. Off-shoring of call-centre operations and backhaul rollout are progressing on schedule.
● M1 is extremely bullish on its prospects under the NGN; fully open access at low wholesale prices points is the “best case scenario” for the company. M1 aims to achieve a 20% share in the residential and corporate sectors by 2015, uplifting revenue by up to 40%. Given M1’s existing strengths (distribution, wireless broadband share) we believe a 21.9% market share is achievable.
● The NGN therefore puts M1 in a position to enjoy structural growth which is not, we believe, priced in by the market given current multiples (9.3x FY10E P/E , 11.5% FY10E cash flow yield). M1 will also finally be able to bundle broadband with cellular, further stabilising cellular market share. Maintain OUTPERFORM rating.
SPH – CIMB
Holding steady
• Post-luncheon takeaways. We hosted a post-results luncheon for 17 institutional clients last Friday. SPH’s CFO, Mr Tony Mallek, addressed several issues which were of interest to clients: 1) ad demand recovery; 2) newsprint prices; 3) revenue recognition of Sky@eleven; 4) investment portfolio, and 5) the potential sale of SPH’s Paragon and M1 stakes.
• Media earnings will take time to bounce back. From discussions with management, we believe that ad demand may have bottomed out. However, a recovery is still months away. Although overall demand visibility is unchanged, SPH feels that advertisers, including property developers, are more ready to advertise.
• Positives from pick-up in property market. The latest revaluation of Paragon by Knight Frank was S$1.98bn, slightly below 2008’s value of S$2.00bn, vs. our valuation of S$1.43bn. As major risks related to its properties have eased, we believe SPH’s share price should do well.
• Outperform. Our earnings estimates have been adjusted by -1.8% to +6.3% for FY09-11, to factor in a shift in revenue recognition for Sky@eleven from FY09 to FY10, and lower staff costs. Our media earnings assumptions are intact. Our sum-ofthe- parts target price has been raised to S$3.99 from S$3.52, boosted by the revaluation of Paragon at S$1.98bn vs. our previous estimate of S$1.43bn.
SingTel – OCBC
Defensive with growth potential
Targeting wider football audience. SingTel recently unveiled its pricing plans for the upcoming UEFA Champions League, Europa League and Serie A matches next season. Offered via three platforms – on mioTV, online and on mobile, the sign-ups will cost S$15.90/month for access to all three platforms for its subscribers; it also has separate plans for individual platforms should subscribers opt not to take up the all-in-one package. And it has not forgotten about non-subscribers – they can pay S$13/month to watch these matches online or just S$6 per live match. We think the multi-platform approach is great as it enables SingTel to tap the whole market of football fans – well beyond its current mioTV subscriber base of 100k.
Defensive earnings still matter. On the economic front, there are increasing signs that the global recession has probably past its worst point, but the consensus is that the pace of the economic recovery is still expected to remain splotchy. As such, there could still be several quarters of uncertain corporate earnings for most companies. On the other hand, SingTel’s suite of services is likely to remain quite resilient as consumers nowadays have deemed them to be near-essential or even a necessity. SingTel itself has guided for stable FY10 performance, with both Singapore and Australia turning in low single-digit revenue growth.
Growth potential from regional associates. Should there be a fasterthan- expected pick up in the economic recovery, we believe that emerging markets in Asia would be the ones who will benefit the most. We further believe that this would translate into faster growth for SingTel’s regional associates, effectively adding a “recovery angle” to its investment thesis. Another potential positive would be associate Bharti’s much-talked about merger with South Africa’s MTN; this would allow SingTel to extend its reach beyond Asia and with well-established partners. Other catalysts would include possible M&As in the region.
Raising fair value to S$3.49. On the recent leadership change at rival StarHub, we do not believe it will affect SingTel much – while it is the de facto leader in the Singapore market, its importance is likely softened by its potential regional expansion. In light of the firmer regional currencies, we have bumped up our FY10 and FY11 estimates slightly; the recent rebound in the global stock markets has also increased our SOTP fair value from S$3.18 to S$3.49. Coupled with an expected 3.9% dividend yield for this year, we maintain our BUY rating.
SMRT – AmFraser
First overseas foray in transport services
• SMRT Corp Ltd has signed a new agreement to buy a 49% stake in Shenzhen ZONA Transportation Group Co Ltd (ZONA) for S$68.4mil (320 million yuan). This purchase price is 25% lower than that in an earlier agreement signed in September 2008.
• The other 51% stake in ZONA is held by National Express Transportation Group Co Ltd.
Completion of the deal depends on conditional precendents to be met by ZONA, as well as
approvals from relevant authorities in China.
• ZONA is a key transport provider in Shenzhen, Guangdong Province. Its total fleet of 803 buses offering public services also extends to Huizhou in Guangdong. ZONA also runs 142 chartered and tourist coaches, 78 long haul coaches, 260 leased cars as well as 830 taxis in Shenzhen.
• We view the deal as positive for SMRT, marking SMRT’s first overseas foray in transport
services. ZONA provides SMRT an avenue to tap further opportunities in the vast China market
through National Express, which is SMRT’s partner in ZONA. National Express has nationwide
bus licences and currently provides extensive intercity bus services in 67 cities in China.
• In terms of financials, SMRT is not disclosing much details until the deal is completed. But suffice to say, ZONA is currently in the black, and while accretive to SMRT’s earnings in FY10, will not be material.
• However, SMRT is guiding that ZONA is expected to contribute significantly in the longer term upon reaching a steady state in its operational expansion. By this, we reckon ZONA could
account for a 10% earnings contribution in five years time, at a minimum.
• Through a 33.5%-associate, ZONA has been awarded the sole public bus operations in the
BoaAnn district (where the international airport is located) in Shenzhen. Much of SMRT’s
purchase price will go towards capex for fleet expansion for this purpose.
• In the near-term, SMRT has spelt out profit targets for ZONA in the deal for (YE March) FY10 and FY11. Falling short of these targets, SMRT will be entitled to additional proportions of distributable profits based on a pre-defined formula.
• SMRT’s purchase consideration for ZONA works out to a price-to-book valuation of 1.7x for
ZONA, cheaper than SMRT’s price-to-book of 3.9x. This is based on ZONA’s net asset value of
376.7 million yuan (S$80.5mil) for its FY ending Dec-2008.
• We maintain our BUY rating on SMRT, which is trading at 17% discount to fair value of S$2.11/ share. While we currently maintain our numbers, we expect the ZONA deal to provide an upside when completed.