Month: February 2010
SingPost – CIMB
Boosted by logistics revenue
• Above; maintain Neutral. 3Q10 earnings of S$44.1m (+20.6% yoy) were 8% above consensus and our estimates, accounting for 29% of our full-year estimate. The outperformance came from higher-than-expected revenue. We have raised our FY10-12 estimates by 2-8%. From Jan 2010, onwards, opex would rise due to higher net terminal dues for international mailing. After adjusting our DPS assumptions, our DDM-derived target price (discount rate 7.3%) also rises from S$1.09 to S$1.11. Although dividend yields are rather attractive at 6%, we remain Neutral on the stock due to a lack of catalysts.
• Logistics revenue drove growth. Revenue grew 12.7% yoy to S$139.6m, thanks to an improving economy and contributions from Quantum Solutions (QS). 9M09 net earnings grew 9.3% yoy to S$124.1m. In line with expectations, 3Q10 dividend was 1.25cts/share.
• Improving economy boosted topline. Mail revenue dipped 1.2% yoy on declines in domestic and philatelic mail, slightly offset by higher international and hybrid mail. Logistics revenue growth of 166% was attributed mainly to QS. Retail revenue was up 4.1% yoy. Rental and property-related income rose 22.2%, thanks to higher rental income from Singapore Post Centre and the leasing of space at repurposed post-office buildings. Operating expenses climbed 8%, because of the consolidation of QS.
• Outlook. SingPost is cautiously optimistic on its outlook, given an improving economy. We believe that more acquisitions could be in the pipeline as part of its regional expansion strategy, which means that cash could be preserved for this purpose. It has maintained its dividend policy of a minimum 5cts/share.
SingPost – DBS
6% yield plus stable earnings outlook
At a Glance
• 3Q10 net underlying profit of S$38.9m in line
• Management guided for up to 5% adverse impact on FY11F earnings from higher terminal dues.
• 1.25 Scents DPS declared, as expected
• HOLD with TP of S$1.05 based on 6% target yield.
Comment on Results
Net underlying profit of S$38.9m (10% qoq, 6% yoy) was in line with our expectation of S$38m. Non-cash gain of S$2.9m on recognition of intellectual property rights and S$2m gain from job credit scheme were not included in underlying net profit. The key surprise came from growth in international mail (+24% qoq) as company secured a new customer. 3Q10 also benefited from seasonal pick up at new subsidiary Quantium, which was acquired in 1Q10. Quantium contributed S$31m in revenue (up 9% qoq). Rental income also showed a slight improvement q-o-q.
Effective Jan 10, Singpost has to pay higher terminal dues for international outbound mails, as Singapore is now re-classified as a developed country in the postal world. Management guided this could have an adverse impact of up to 5% on earnings, although they would try to minimize it.
Recommendation
Dividend yield of 6% is secure while Singpost looks out for possible acquisition targets. With two small acquisitions made in 2009, Singpost is looking for more acquisitions in the logistics segments, in order to grow its business. We do not see any risk to stable earnings of Singpost and recommend HOLD for a 6% yield.
SingTel – DBS
Cheapest telco in Singapore
• Trading at 11.6x PER, below 12.3x for MSCI Asia-Ex Japan telco services and cheaper than smaller peers StarHub and M1.
• Sharp recovery in Indonesia and stronger rupiah prompted 3%/6% upgrade of FY10F/11F earnings.
NCS is also making solid progress in Singapore.
• Upgrade to BUY with revised TP of S$3.50. Rumors of Optus re-listing, if true, could add 50 Scents to our TP.
Telkomsel should offset Bharti’s weakness. Telkomsel’s CEO Mr. Sarwoto Atmosutarno commented recently that Telkomsel’s subscriber base grew 26% y-o-y in 2009, and aims to grow that by another 14-15% in 2010. We raised our FY10F/11F (FYE March) earnings for Telkomsel by 12%/19%. We forecast SGD earnings growth of 30%/13% and 12%/-10% for Telkomsel and Bharti in FY10F/11F. Telkomsel earnings should offset potential S$85m drop to Bharti’s earnings contribution in FY11F, in our view.
Optus re-listing could add 50 Scents. The Wall Street Journal reported on 14 Jan that the sale of 25% stake in Optus is likely to raise A$4bn; SingTel declined to comment. If true, this could add 50 Scents to SingTel’s valuation. We estimate Optus’ market value at A$9b-11b, but SingTel might secure premium valuation for Optus, based on a higher dividend yield; similar to Maxis’ IPO. A much stronger AUD/SGD exchange rate of 1.25 is also favorable. In fact, SingTel could consider special dividends from Optus re-listing proceeds if it cannot find right acquisition targets, in our view.
Upgrade to BUY. SingTel is trading at 11.7x FY11F PER compared to StarHub’s 12.7x and M1’s 12.2x, despite a diversified business model and better growth prospects. Our earnings revision prompts higher SOTP valuation from Telkomsel (better outlook) and Optus (AUD/SGD) rate).