Month: March 2010
SPH – CIMB
Positives to look forward to
• Maintain Outperform. We lift our sum-of-the-parts target price to S$4.50 from S$4.44 after accounting for higher media earnings and contributions from Clementi Mall. We raise our FY10-12 earnings estimates by 2% to incorporate higher print ad and property revenue estimates, offset by higher interest expense. We believe investors' disappointment with its Clementi Mall acquisition has been priced in. Instead, we urge investors to focus on yoy and mom improvements in ad demand (print ads account for more than 50% of SPH's revenue). We see stock catalysts from better-than-expected ad demand.
• Higher page count led by property and job ads. The Saturday edition of The Straits Times averaged 227 pages in February, down from 252 pages in January, as advertising typically slows down during Chinese New Year. However YTD, the page count is up 22% yoy. We believe the uptrend is sustainable, driven by a robust property market and an improving job market. Concerns over high newsprint costs have also eased as prices have been locked in till Sep 10 and remain way below peak prices.
• Defensive, with high dividend yields. For investors looking for defensive names, we recommend SPH for its: 1) near-monopoly of the print ad industry in Singapore, making it a beneficiary of a domestic economic recovery; 2) print business which is well-positioned to benefit from an influx of events over the next few years following the opening of two new integrated resorts; and 3) dividend yields of 6-7%, comparable to the average S-REIT yield and higher than yields from the other large caps.
SATS – OCBC
Ready to soar new heights
Stronger recovery in aviation demand… The International Air Transport Association (IATA) has halved its 2010 loss forecast for airlines to US$2.8b last week (from Dec 2009 forecast of US$5.6b), as improvements driven by economic recovery in Asia-Pacific and Latin America proved to be stronger than expected. According to the association, passenger and cargo demand, which fell by 2.9% and 11.1% respectively in 2009, are now expected to grow by 5.6% and 12.0% in 2010, significantly better than its previous forecasts of 4.5% and 7.0%. We expect SATS Limited to directly benefit from this stronger recovery in aviation demand due to its strong presence in the Asia-Pacific region.
…and growth in visitor arrivals likely to boost SATS' airport services. We also note Singapore Tourism Board (STB)'s recent optimistic projection for 2010 visitor arrivals, which is expected to hit between 11.5-12.5m, up by as much as 30% from 2009 number of 9.7m. We believe it further supports our view that SATS is likely to enjoy stronger demand for its airport services this year.
Food solutions segment expected to fare better as well. For its non-aviation business segment, we believe SATS would also register improved performance in the upcoming quarters, underpinned by strength at Singapore Food Industries (SFI), Country Foods and potential business opportunities in the tourism and hospitality sectors. In the upcoming 4QFY10, margins from SFI are also expected to maintain at current levels as it benefits from lower cost by consolidating commodities at larger quantities, and as Daniels Group enters into a seasonally stronger quarter.
Timely establishment of medium term notes. With the timely establishment of a new S$500m multi-currency MTN programme on 9 Mar, SATS is also well-positioned for all growth opportunities in our view. This as the net proceeds arising from the issue of Notes will be used for general working capital, capex, refinancing purposes as well as long-term strategic investments/acquisitions.
Maintain BUY with S$3.27 fair value. SATS is currently trading at 16.2x FY10F EPS and 14.2x FY11F EPS. We expect the stock to re-rate towards our DCF-based fair value of S$3.27 (or near its high cycle PER of 21x) amid a significantly stronger earnings profile (with acquisition of SFI) and brighter outlook. We believe SATS has still ample room for growth and yield improvements, both internally via synergies with SFI and externally through greater sales volume. Maintain BUY.
Pay TV – CNA
Pay TV providers now required to cross-carry exclusive content
With immediate effect, Pay TV providers which acquire exclusive broadcast rights to any programme, must cross-carry each other's content.
This applies to any contract signed or renewed from March 12. It does not affect existing contracts.
The fierce bidding over rights to broadcast the upcoming World Cup matches raised concerns over the issue of 'exclusive' rights, which has affected consumers in the Pay TV market.
To lock out competitors, Acting Minister for Information, Communications and the Arts Lui Tuck Yew said on Friday said Pay TV operators are willing to fork out substantial amounts for exclusive rights.
This has led consumers to cry foul, especially since they have to subscribe to both SingTel and StarHub – rivals in Singapore's PayTV market – for example, to catch their favourite football teams in action.
This practice of holding on to exclusive content though is rare in international markets.
Mr Lui said: "Content costs now constitute a significant percentage of pay TV operators' revenue, compared to international benchmarks. For example, SCV's content costs to revenue ratio has risen from 40 per cent prior to 2007 to close to 70 per cent today. This is much higher than the average 40 per cent for Pay TV operators in most other countries, including US, UK and Hong Kong.
"Secondly, Singapore suffers from a high degree of content fragmentation compared to other countries. Out of 179 channels today, only seven channels are common to both SCV and SingTel. An international benchmarking exercise using a group of 16 popular channels showed that Singapore was the only country with exclusive arrangements for all 16 channels.
"MDA's (Media Development Authority) review has concluded that this situation is unlikely to self-correct in the near future, and steps need to be taken to address this market failure".
So under the new Media Market Conduct Code, there will be a Public Interest Obligation. This means Pay TV providers must cross-carry each other's exclusive content.
For example, if SingTel acquires a new channel exclusively, it must make this channel available to StarHub.
StarHub must carry this programme at the same time SingTel is airing it – and vice versa.
StarHub also cannot make any modifications to the content.
This includes all the advertisements and branding SingTel may have embedded into the programme.
And SingTel will have to pay StarHub to carry its exclusive content.
It will be left to the telcos to work out a cost for this.
For consumers, it means that they can watch an exclusive channel through just one Pay TV retailer.
Consumers, regardless of which Pay TV service provider they belong to, will be charged the rate that has been stipulated by the original content provider. In the case of the example, whatever SingTel charges its customers for the exclusive content, StarHub customers will pay the same rate.
Mr Lui elaborated: "Consumers would no longer require multiple set-top boxes or switch retailers each time the rights of exclusive content changes hands. This will facilitate greater consumer access to pay-TV content, and re-focus competition to other aspects, such as service differentiation and competitive packaging".
For the industry, it means opening up the market to new players.
The rights holder will be able to brand the exclusive content, market it and monetise it as it wishes.
While the law takes immediate effect, the actually sharing of content is likely only to take place from September. For now, MDA will consult industry players, and sort out the details, like how consumers' bills will look like, and whether the review will affect new media platforms.
As for how this will impact the broadcast of World Cup matches in Singapore, it is status quo for now, as SingTel and StarHub have submitted a joint bid and are waiting for FIFA's reply.
Mr Lui said: "Let me just say that I am very happy that World Cup comes around only once every four years. We understand that SingTel and StarHub have recently made a new offer and negotiations with FIFA are still on-going. This is a commercial matter that is best left to the two pay-TV retailers and FIFA to settle.
"I know time is running short; we are well into the second half, we are approaching injury time, but we remain hopeful that the negotiations will reach a sensible outcome."
Meanwhile, Pay TV operators SingTel and StarHub have responded to the government's announcement on content exclusivity.
SingTel said it will review the details and actively engage the MDA through the industry consultation process.
StarHub said it fully supports the government's efforts to ensure fair and reasonable content costs. It also added that it supports the idea of a common set-top box for consumers.
MediaCorp also spoke to Singaporeans for their views.
One person said: "If a particular coverage has got wide appeal, like it is a national event or an international event, I think this should be made readily available, preferably free, if not, (at) a very reasonable rate to the consumers."
Another commented: "If this new initiative comes up, there is no edge by one service provider over another."
Analysts have said consumers will benefit from the move requiring Pay TV operators with exclusive content to allow such programming to be carried by other operators.
Kenneth Liew, senior market analyst, IDC Financial Insights, said: "In terms of pricing, in future bidding, both companies are likely to not bid so much on exclusive content, because at the end of the day, the other party will get to screen it, so they will actually bid at more reasonable prices.
"This is good news for consumers, because the bid price being lower will actually bring down the cost for consumers as well." – CNA/ms
SATS – BT
SATS in NIIT tie-up to market cargo system
Deal takes the partnership between the two companies to a new level
SINGAPORE Airport Terminal Services Ltd (SATS) and Mumbai-listed technology solutions provider NIIT Technologies have inked a strategic partnership for a global roll-out of their proprietary Cargo Operations System Intelligent Solutions (Cosys IS).
The deal marks an upgrading of a partnership between the two companies which goes back to 2000 when NIIT developed and implemented SATS’s existing cargo ground-handling software solutions at Changi.
‘We first developed Cosys IS to manage our cargo customers’ handling requirements as well as our extensive hub operations in Singapore,’ said Yacoob Peperdi, senior vice-president for Cargo Services at SATS. ‘Subsequently, Cosys IS was deployed at our overseas operations as part of our value adding contribution. It has proven to be a valuable operating tool, and we are happy to develop a deeper partnership with NIIT Technologies and to promote Cosys IS within the airline and cargo industry.’
Arvind Thakur, CEO of NIIT, said the system would be implemented wherever SATS has operations. The Singapore airport ground service giant has 14 joint ventures in 30 locations.
‘The intellectual property belongs to SATS, while we will implement it,’ he said, adding that NIIT would market the system to users.
This raises the potential of fee-based revenue for SATS and NIIT.
Mr Thakur said the recovery of the global air cargo business would help drive the demand for the product. ‘We are seeing 5 per cent average growth, with Asia leading the way,’ he said. ‘And as this growth accelerates, there will be opportunities to engage more business and build up revenue.’
NIIT, which has IHQ status here, is one of India’s leading IT-driven technology solutions providers to the finance, travel & transportation, and retail & distribution sectors. In the Asia-Pacific region, it also counts the governments of India, Singapore and Australia as its key clients.
Last year, NIIT Technology and its parent, NIIT Ltd – a leading software training provider in India – together chalked up revenue of over US$400 million.
The company has had a relatively long presence in Singapore, with a staff of more than 100 who have worked on developing various e-government solutions for ministries and government agencies.
In Australia, it is the leading solutions provider to the transport department.
SATS – BT
SATS sets up new MTN facility
$500m open-dated programme with no expiry period replaces earlier one
SINGAPORE Airport Terminal Services (SATS) has established a new $500 million multicurrency medium-term note (MTN) programme to help finance potential investments and expansion.
The latest note programme replaces its 10-year $500 million MTN programme set up in 2001. SATS drew down just $200 million from that programme in 2004, which was subsequently paid down and retired in September last year.
The latest MTN facility, arranged by DBS Bank and OCBC Bank, is open-dated or ‘evergreen’, with no expiry period.
SATS indicated it can be used for general working capital, capital expenditure and capital management purposes, as well as strategic investments and to refinance borrowings.
In a statement issued via the Singapore Exchange, SATS said the notes may be issued on a syndicated or non-syndicated basis.
‘Each series of notes may be issued in one or more tranches, on the same or different issue dates, and be issued at par or at a discount, or premium, to par,’ it said.
‘Notes may bear interest at fixed, floating, variable or hybrid rates or such other rates, and subject to compliance with all relevant laws, regulations and directives, may have maturities of such tenor, as may be agreed between SATS and the relevant dealer(s). Hybrid notes or zero coupon notes may also be issued under the programme.’
Having the facility does not necessarily mean cash-rich SATS will use it any time soon.
‘This facility simply replaces the previous one, and we secured it just to give us some financial flexibility,’ said Sandy Leng, the company’s head of investor relations.
SATS has virtually no gearing, and had cash of some $138 million in the kitty at end-December 2009. This was after it paid $487 million to buy Singapore Food Industries (SFI) last year.
SATS boosted net earnings for its third quarter to end-December 2009 by 42 per cent, or $15.8 million, to $53.4 million, thanks primarily to the consolidation of SFI, which it bought for some $509 million a year ago. Topline revenue for the quarter rose $191.9 million, or 79.2 per cent, to $434.3 million, with SFI contributing $199.6 million, or 46 per cent of this.
Net profit for the April-December 2009 period rose 29 per cent to $134.7 million, on a 56 per cent rise in revenue to $1.15 billion, surpassing the full-year FY’08/09 revenue of $1.07 billion.