Month: November 2009
SMRT – DBS
Hop onto this train
• 2Q net profit of S$52.8m slightly ahead (+24% yoy) on lower opex and higher other operating income
• Electricity locked in till Sep 2010, giving more certainty to costs, in our view
• 49% stake in Shenzhen Zona for RMB320m; Zona’s profit expect to double by 2010/11
• Upgrade to Buy; TP: S$2.00 (24% upside)
2Q slightly ahead. Headline net profit of S$52.8m (+24% yo-y, +6% q-o-q) was slightly ahead of our expectations on higher other operating income (S$8.5m, +25.9% yoy) and lower operating expenses (S$174.7m, -3.6% yoy). Topline inched up marginally to S$229.4m (+1.1% yoy) on higher MRT revenues, rental and overseas consultancy fees, but offset by the fare reduction. An interim dividend of 1.75 Scents was declared (similar to 1H09).
Electricity contracts locked in till Sep’10. Management has locked in its electricity contract rates at 11% higher than the previous one which expired in Sep’09. While this would increase its operating costs in 2H vis-à-vis 1H, we believe it gives certainty to its operating results given the current environment.
Fruition of 49% stake in Shenzhen Zona. The agreement has just been signed on 30 Oct for a 49% stake (RMB320m). Historical PAT (2008) of Zona was RMB24.1m, but management guided that profit would more than double by 2010/11 on lower interest costs and a larger vehicle fleet expected. We estimate it would account for c.3% of earnings by then.
Upgrade Buy, TP: S$2.00. We see positive investment attributes in this defensive counter based on its: (i) stable recurring earnings on firm ridership; (ii) foray overseas and the potential in its associate, which management appears to be very optimistic about; and, (iii) that the counter has been overlooked recently over higher beta plays. Our TP is based on an average of 15x FY10/11F PER and DCF (WACC 7.2%).
SMRT – CIMB
Ridership rises
• Maintain Outperform. 2QFY10 net profit of S$52.8m (+24.1% yoy) was 15% above our and market consensus, accounting for 31% of our full-year estimates. The outperformance was due to lower fuel costs and a fall in other opex. Our earnings estimates are unchanged as we expect operating expenses be higher in 2H10. Maintain Outperform with our DCF-derived target price unchanged at S$2.09 (WACC: 8.6%, terminal growth: 2%). We like SMRT as a beneficiary of higher tourist arrivals in Singapore. Rerating catalysts could include further overseas acquisitions and growth from new MRT lines.
• Above expectations. Despite fare reduction, revenue grew 1.1% to S$229.4m thanks to contributions from the new Circle Line, higher rental revenue and higher overseas revenue. Operating expenses fell on lower energy costs (-16.9% yoy) and other expenses (-8.8% yoy). Within energy, diesel costs fell by 44% yoy to S$8.5m, while electricity costs rose by 113% yoy to S$16m due to increased train runs and the operation of Circle Line. An interim dividend of 1.75/share was declared.
• Operational review. Train revenue rose marginally thanks to higher average ridership and contributions from the Circle Line. However bus revenue fell on lower average fare and average daily ridership while taxi revenue fell on smaller average hired-out fleet. Rental growth (+13% yoy) was boosted by improved yield and increased rental space.
• Operating expenses to be higher in 2H10. 3Q09’s fare-based revenues are expected to be lower yoy on lower fares and higher transfer rebates. However SMRT is expecting higher rental revenue and higher fees from overseas projects. Outlook for taxis has improved after trimming the fleet by 12% yoy. 2H10 operating expenses are likely to be higher hoh due to more scheduled repairs and maintenance, and costs related to the opening of remaining Circle Line stations.
SingTel – DBS
Would market like the show of support from SingTel?
• SingTel would raise its interest in Bharti AirTel from 30.43% to 31.95%, by paying INR 18-30 bn to Bharti’s parent company.
• This translates to INR 311-519 per Bharti share in our view, compared to the current price of INR 293, implying 7.6x-12.4x FY10 EV/EBITDA
• We expect SingTel to report 2Q10F underlying earnings of S$937m (+17% yoy, -1% qoq) broadly inline with consensus on 11 Nov.
• We would be buyers below S$2.85. Maintain HOLD with revised STP based target price of S$3.15 as we lower our fair value of Bharti.
Implications of Bharti deal. SingTel would pay between INR 18 bn-30 bn for an additional 1.52% stake in Bharti. Given, 3.8 bn Bharti shares, it translates to INR 311-519 per Bharti share. This implies FY10F EV/EBITDA of 7.6x-12.4x and PER of 13.5x-22.4x on our EBITDA and profit of INR 162 bn and INR 88 bn respectively. Given prospects of Bharti’s earnings decline next year, we think, market may not
appreciate the price being paid by SingTel.
Bharti’s results were slightly below consensus, but outlook could be worse than consensus. Bharti’s 2QFY10F net profit of INR 23.2 bn (-8% qoq, +13% yoy) was inline with ours and c.5% below consensus. ARPU decline of 9% qoq was worse than street expectations of 6-7%. We expect significant decline in tariffs as new players (Etilsalat, Telenor, Sistema) deploy lower pricing while smaller players (Aircel, Tata-Docomo, Idea) adopt per second billing to attract subscribers. We are 7%/15% below FY10F/11F consensus earnings for Bharti. We lower our fair value of Bharti to INR306 at 13.5x FY10F PER (prev 345), given our regional PER average of 14.4x/13.3x for 2009/10 respectively
Telkomsel results and outlook slightly better than consensus. Based on PT Telkom’s 3Q09 results, we estimate that Telkomsel had a net profit of IDR 3.6 tr (flat qoq, +34% yoy), attributable to increased market share and forex gains. We expect 20% y-o-y earnings growth in 2009, and our FY09/10 forecasts are 3%/3% higher than consensus. Another positive for SingTel is that IDR and AUD have strengthened against SGD by 2% and 9.8% qoq.