Month: November 2009
SMRT – Phillip
2nd Quarter FY2010 Results
Marginal year-on-year topline with significant bottomline increase. SMRT Corp Ltd announced Group revenue for the second quarter of FY10 (“2QFY10”) of $229.4m. This represents a marginal increase of 1.1% from a year ago due mainly to higher revenue with the operation of Circle Line Stage 3, increased rental revenue and higher revenue from overseas projects, partially offset by fare reduction. Net profit for 2QFY10 came in at $52.8m, an increase of 24.1% compared to the same period last year. The significant increase was on the back of higher revenue and other operating income, Government Budget measure, lower energy costs and lower other operating expenses. The results are mainly within our expectations and we maintain our HOLD call with no changes in our fair value estimate of $1.89 as from the previous last done price of $1.73, this represents an upside of 9.25%.
Train Revenue Segment. Total Ridership for the quarter grew by 2.2%. Revenue increased marginally from $122.8m to $123.3m or 0.4% year on year. This was mainly due to higher average daily ridership and the commencement of the Circle Line Stage 3, partially offset by the fare reduction. EBIT increased from $36.1m to $38.7m or 7.0% due mainly to higher revenue and other operating income. Revenue from LRT operations fell by about 5% to $2.2m with EBIT declining approximately 28% to $0.1m.
Bus operations Revenue Segment. Bus operations posted a 4.6% decline to $51.0m in 2QFY10 due mainly to lower average fare and average daily ridership. Total ridership declined by 0.7% year on year. However, lower diesel costs improved bus operations EBIT, resulting in an operating profit of $1.8m compared to an operating loss of $1.1m a year ago.
Taxi Revenue Segment. Revenue in this segment saw a decline of 2.6% to $17.9m for 2QFY10 due mainly to a smaller average hired-out fleet. As a result of the smaller average holding fleet, operating expenses were lower and thus resulting in an operating profit of $0.8m compared to an operating loss of $0.5m in the same period last year.
Rental Revenue Segment. Rental revenue saw another quarter of good performance growing by 13.1% from $14.2m to $16.1m year on year. This was mainly due to increased rental space, a total of 29,225 sqm lettable space at the end of 2QFY10, and better yield. EBIT grew by 10.8% from $11.5m in 2Q09 to $12.7m this quarter.
Advertising Revenue Segment. The weak economic environment saw advertising revenue decline 9.8% to $5.4m with EBIT declining 10.8% to $3.4m.
Engineering and Other Services Segment. This segment saw an increase in revenue by 38.0% to $13.4m and EBIT grew almost five-fold to $5.5m on the back of increased consultancy revenue and higher fees from overseas projects.
The Group has fixed the rates for their electricity contract for the next 12 months from 1st October 2009 to 30th September 2010. The rates will be 11% higher than the previous six-month contract, which ended on 30th September 2009.
The $150m fixed rate notes issued recently in October 2009 should see Finance costs increasing. Total debt will return to current levels when the existing notes of $100m and $50m are repaid in December 2009 and January 2010 respectively.
The Group should be facing a challenging environment for the remainder of its financial year with the fare reduction package ending only in June 2010 as well as higher operating expenses due to increase in ramp-up costs for the remaining circle line stations, volatile diesel prices, higher electricity tariff rates, expected increase in headcount and therefore staff related costs and higher scheduled repairs and maintenance for Train. The Jobs Credit Scheme will also be at stepped down rates for six months from January to June 2010.
Our fair value estimate remains at $1.89 as most of the expected increase in operating expenses has already been factored in previously. With the last traded price of $1.73 representing a 9.25% upside from our target price, we reiterate a HOLD call based on our stock selection system.
StarHub – BT
Just move on, StarHub
DESPERATE times call for desperate measures, so the saying goes. And when one has to turn to one’s rival for balm, that must surely signal that the situation is as dire as it gets.
StarHub may have done just that when it extended an olive branch to Singapore Telecommunications to carry the latter’s pay-television content on its cable platform for free.
On the surface, the suggestion – unheard of in the pay TV industry – appears to be a rare case of business altruism. StarHub’s 500,000 cable television customers can be spared the hassle of having two set top boxes when the new BPL (Barclays Premier League) kicks off next August.
Rival SingTel also stands to gain as it could save millions by tapping StarHub’s infrastructure to reach consumers and businesses instead of investing in its own wiring.
To make the deal even sweeter, customers will pay SingTel for their BPL subscriptions, even though the channel is delivered via StarHub’s cable television set-up. After all, the argument is that StarHub has already been doing the same for free-to-air channels such as MediaCorp 5 and 8.
It would seem that the complaints of long-suffering football fans have finally been heard and, short of any government intervention, an interim win-win work-around has now been found. However, if you peel the bark off the StarHub olive branch, it is quite clear that damage-control is the true self-serving intent.
The BPL has always been the crown jewel of StarHub’s sports line-up and its latest offer to SingTel seems like a veiled attempt to cling on to this prized trophy.
StarHub’s mooted approach will indeed save consumers the inconvenience of owning two pay TV boxes.
What is left unsaid is that it will also help stem the exodus among its current cable television base. This is because StarHub customers who want to watch the BPL will be more inclined to hang on to their pay-TV subscriptions.
Another fact is that StarHub is mandated to carry terrestrial channels such as MediaCorp 5 and 8 by the Media Development Authority of Singapore (MDA). In the latest plot twist, StarHub extended the offer to carry SingTel’s content out of its own free will.
The MDA has already said that it would not interfere in the commercial arrangements of pay-TV operators despite some recent customer rumblings. This is consistent with its decision in 2006 when SingTel appealed successfully to the MDA to ban exclusive content such as the BPL on the grounds that it discourages competition.
This means that any tweaks to the regulator’s policy should only be made in the next round of bidding three years later when the scores between the two quibbling foes are even.
While StarHub could be using the media to influence public opinion to get SingTel to concede the middle ground, it may have done the exact opposite of stirring the hornet’s nest.
At the red camp, this suggestion will undoubtedly be seen as yet another gibe at its ability to wire-up the nation over the next 10 months for BPL broadcast.
StarHub’s outgoing helmsman, Terry Clontz, had already questioned this once and the comment was met with a stern rebuttal from SingTel Singapore CEO Allen Lew.
‘We have never said something and not delivered,’ Mr Lew told BT then.
If SingTel takes up the StarHub offer now, it will be seen as backtracking on a public commitment. Pride aside, a compromise also cast doubts over the viability of its own mio TV platform.
If SingTel can resort to door-to-door selling in housing estates to push its mio TV service two years ago, you can be sure it will spare no expense to drive the take-up for its new sports portfolio.
Furthermore, the marketing machinery at SingTel has already been fired up. Its telemarketers have already started calling customers to up-sell its new sports line-up. Such a content-sharing arrangement would only complicate the sign-up process.
Rather than moping over the BPL loss, StarHub should move quickly to resolve lingering consumer doubts. Concede that the sports battle is lost and move on quickly to reposition itself with its other exclusive pay-TV content. Make the necessary price adjustments and offer perks to lock in consumers with shorter-term one-year contracts to stem immediate customer outflow.
StarHub has said that it would bounce back after being one goal down. Now it’s time to put the money where its mouth is. Offering to take in your rival’s star striker can hardly be considered a viable solution.
SingTel – BT
US$300m sub-sea cable by SingTel and partners lands in Japan
SINGAPORE Telecom, Google and other partners are on track for a substantial sub-sea bandwidth boost from the first quarter of next year.
A US$300 million, 9,620km sub-sea cable system funded by a consortium of six companies – Bharti Airtel, Global Transit, Google, KDDI Corp, Pacnet and SingTel – has landed in the Japanese coastal town of Chikura. Construction of the system was announced in February last year.
Linking Japan to the US via the Pacific Ocean, this undersea digital superhighway is expected to be a major boost for its owners, as well as businesses and consumers in bandwidth-hungry Asia.
The cable system will add up to 4.8 terabits per second (Tbps) of bandwidth between the US and Asia and help its owners meet growing demand for data, e-commerce and Internet traffic between Asia and the US.
It will also serve as an important alternate route to ferry digital traffic in the event of disruptions to other cable systems.
The timing of the Chikura landing shows the consortium – called Unity – is on schedule with construction.
‘The new Unity cable system will enable members of the consortium to deliver increased capacity and more reliable connectivity to support the growth of bandwidth-hungry applications such as video, the growing popularity of cloud computing and to address the rise of digital content travelling between Asia and the United States,’ said Chris Wilson, chairman of the Unity executive committee.
This is the first time since 2004 that SingTel is financing a sub-sea cable-laying project.
In 2004, it joined 15 other companies to build a 20,000km system known as the South East Asia-Middle-East – West Europe 4, or SEA-ME – WE 4.
This venture is also notable for the participation of Internet search giant Google.
Unity’s largest investor Pacnet, which owns the region’s largest private sub- sea cable system EAC-C2C, will link its portion of the new cable system – dubbed EAC Pacific – with the EAC-C2C.
SPH – CS
Faster-than-expected pace of recovery so far in FY10
● According to the CS Page Monitor, newspaper ad demand pickedup further in 1Q FY10, after bottoming in 3Q FY09. Estimated total classified volume fell 9% YoY in the first two months (September and October) of 1Q FY10 – a big improvement from the – 17% in 4Q and -33% in 3Q. In addition, our page count indicates that display ad volume fell by ‘only’ 3% during the same period, versus -9% in 4Q and -11% in 3Q.
● In fact, our work shows that display and non-job classified ad volume grew YoY in October – the first time since the ad volume grew YoY in August/September 2008. Our FY10E total newspaper ad revenue forecast of -6% might be too conservative if the pace of improvement continues to surprise on the upside. Our sensitivity analysis shows that every 5% upgrade in FY10E ad revenue forecast translates into a +6% net profit revision (and +9% media profit upgrade) for SPH.
● While SPH has started to outperform, it continues to trade at a discount to the market. We maintain our OUTPERFORM rating with a target price of S$4.41.