Month: May 2011
STEng – BT
ST Engg’s Q1 profit jumps 20% to $111m
Revenue rises 15% to $1.57b; EPS up 19% to 3.65 cents
SINGAPORE Technologies Engineering (ST Engineering) yesterday posted a 20 per cent jump in first-quarter net profit to $111.1 million, from $92.8 million a year ago.
The net profit increase came on the back of a 15 per cent rise in the conglomerate’s revenue for the three months ended March 31.
Group revenue rose to $1.57 billion from $1.36 billion a year earlier, lifted by its electronics and land systems sectors, while its aerospace arm posted the strongest profit growth.
Earnings per share grew 19 per cent to 3.65 cents, while net asset value rose to 57.53 cents as at end-March, from 55.24 cents a year earlier.
For the first quarter, commercial sales came to $892 million, or 57 per cent of total turnover for the group, which derives significant revenues from supplying equipment to the Republic of Singapore Armed Forces and other military customers.
The land systems arm saw a 35 per cent jump in revenue to $358 million, thanks to higher project deliveries from its automotive business segment.
Double-digit revenue growth was also seen in the electronics arm, whose turnover rose 24 per cent to $444 million, thanks to milestone completions of the Circle Line and half-height platform screen door projects for the Land Transport Authority. Both sectors thus saw double-digit growth in Q1 net profit too.
While revenue for the aerospace arm was flat from a year ago, it still managed 33 per cent jump in pre-tax profit, thanks to a favourable sales mix and foreign exchange gains. As for the smallest of the four, the marine sector, revenue edged up 6 per cent on increased shiprepair activity but net profit dipped.
Overall, the group’s cash and cash equivalents and short-term investments totalled $1.85 billion, while advance payments from customers stood at $1.6 billion.
ST Engineering also secured new orders in the quarter, including aerospace maintenance and shipbuilding contracts, ending with an order book of $11.3 billion. Of this, it expects $3 billion to be delivered in the rest of 2011.
In the stock market yesterday, ST Engineering shares closed one cent higher at $3.08.
SingTel – DBSV
Needs higher payout ratio to outperform
• Bharti may grow slower than expected, eroding SingTel’s appeal as a cheap proxy to Bharti.
• Slow adoption of Android phones in Singapore is not helping SingTel either.
• Downgrade to HOLD with lower TP of S$3.20. Special dividends cannot be ruled out with 4Q11 results in order to compensate for lack of earnings growth.
Trimmed FY12F/13F group earnings by 4% / 6% mainly due to Bharti. While improved competitiveness in India and margin improvement in Africa bode well for Bharti, we underestimated the cost pressure from 3G rollout in India. Keeping in mind, higher depreciation & amortization and tax expenses, we downgraded Bharti’s earnings growth in FY12F to 15% from 30% earlier.
Slow adoption of Android phones. Singapore continues to lag behind markets like US and UK in terms of popularity of Android based phones, which require lower subsidies than iPhones. Higher breakeven costs of iPhones may continue to burden the margins of cellular players in Singapore.
Needs higher payout ratio to outperform in our view. We are projecting a 70% payout ratio for FY11F/12F, towards the top end of SingTel’s guidance of 55%-70%. Given non-compelling growth prospects, SingTel needs to (i) increase its earnings payout ratio to ~80% to formulate an attractive (~6.5%) dividend yield, or (ii) perform capital management proactively on top of its 70% payout ratio. Downgrade to HOLD with revised SOTP based TP of S$3.20. The stock is trading at 12.5x FY12F PE below its 4-year average of 13.2x. As such, downside risk is also limited in our view.
SingTel – DBSV
Needs higher payout ratio to outperform
• Bharti may grow slower than expected, eroding SingTel’s appeal as a cheap proxy to Bharti.
• Slow adoption of Android phones in Singapore is not helping SingTel either.
• Downgrade to HOLD with lower TP of S$3.20. Special dividends cannot be ruled out with 4Q11 results in order to compensate for lack of earnings growth.
Trimmed FY12F/13F group earnings by 4% / 6% mainly due to Bharti. While improved competitiveness in India and margin improvement in Africa bode well for Bharti, we underestimated the cost pressure from 3G rollout in India. Keeping in mind, higher depreciation & amortization and tax expenses, we downgraded Bharti’s earnings growth in FY12F to 15% from 30% earlier.
Slow adoption of Android phones. Singapore continues to lag behind markets like US and UK in terms of popularity of Android based phones, which require lower subsidies than iPhones. Higher breakeven costs of iPhones may continue to burden the margins of cellular players in Singapore.
Needs higher payout ratio to outperform in our view. We are projecting a 70% payout ratio for FY11F/12F, towards the top end of SingTel’s guidance of 55%-70%. Given non-compelling growth prospects, SingTel needs to (i) increase its earnings payout ratio to ~80% to formulate an attractive (~6.5%) dividend yield, or (ii) perform capital management proactively on top of its 70% payout ratio. Downgrade to HOLD with revised SOTP based TP of S$3.20. The stock is trading at 12.5x FY12F PE below its 4-year average of 13.2x. As such, downside risk is also limited in our view.
SingTel – CIMB
Bharti’s 4Q11 was in line
Bharti’s 4Q11 results
Maintain Underperform. SingTel’s Indian associate, Bharti, reported FY11 results that met estimates with core profit 2% ahead of consensus (we use these for our SingTel forecasts). Consolidated topline was up 3% qoq, aided by elasticity gains in Africa and India though margins had dropped in India, partially offset by Africa. We make no adjustments to our earnings forecasts, SOP-based target price of S$3.29 and UNDERPERFORM rating for SingTel pending its results announcement on 12 May. Potential de-rating catalysts are regulatory risks in Thailand and competitive risks in Australia and Singapore.
The details
Lower qoq. Bharti’s consolidated revenue rose 3% qoq, aided by growth in both its Indian/South Asian (+3% qoq) and African operations (+3% qoq) as elasticity gains occurred in both markets. Consolidated EBITDA margins shed 0.3% pt qoq as India booked weaker margins (-0.7% pt qoq) excluding rebranding costs. This was partially offset by its African operations. The lower margins, higher interest expense from higher debt for 3G and Africa and tax caused core profit to fall 19% qoq.
More on India. Revenue grew 3% qoq on the back of increased elasticity. RPM slid only 2% qoq, pointing to intense but rational competition as RPMs have stabilised over the past few quarters. However, margins were hurt by higher network opex (addition of 3G sites, expansion in Bangladesh and Sri Lanka and its DTH business), higher access charges and spectrum fees. Mobile margins have been dropping, falling from 36.4% in 4Q10 to 33.3% in 4Q11 on higher spectrum fees.
3G and MNP. Bharti has launched 3G services in nine of the 13 circles for which it had won spectrum. It is awaiting clearance before proceeding with the remaining four circles. It is in talks with other leading operators to have a nationwide 3G presence. For MNP, there has not been much of an impact as only 1.1% of the subscriber base had requested to port and Bharti is capturing a disproportionate share of that number.
More on Africa. The bulk of tariff correction in Africa has been completed. It has also gained revenue market share in all the markets it operates in. Through the implanting
of its unique business model, it has begun to lower costs and costs/minute should continue to drop over the next 4-6 quarters. While pricing power is important, Bharti would look to reducing tariffs as costs continue to fall over this period. EBITDA margins rose 1% pts qoq (exclude re-branding initiative in 3Q) in 4Q11 and Bharti expects positive margins to continue as scale benefits flow through and as it cuts costs further. One area of potential margin concern is access charges which rose 12% qoq. Bharti is looking to drive more off-net traffic as it strives to have a more equal mix in on-net and off-net traffic. It expects the impact from traffic rebalancing to ease over the next two quarters. Other headwinds in Africa pertain to know-your-customer requirements in many countries in Africa which are more stringent than Indian requirements. Another headwind pertains to supply constraints from some strategic partners but this constraint is only expected to be short term.
DPS declared and capex guidance. Bharti declared a dividend of Rp1/share following its practice of declaring dividends in 4Q since its maiden dividend in 2009. For FY12, Bharti intends to spend US$2.9bn-3.1bn on capex. India would consume US$1.5bn, Africa, US$1bn-1.2bn and the tower business, US$0.4bn.
Valuation and recommendation
Maintain UNDERPERFORM. We make no adjustments to our forecasts, SOP-based target price of S$3.29 and UNDERPERFORM rating pending SingTel’s results on 12 May. Potential de-rating catalysts are regulatory risks in Thailand and competitive risks in Australia and Singapore.
SingTel – CIMB
Bharti’s 4Q11 was in line
Bharti’s 4Q11 results
Maintain Underperform. SingTel’s Indian associate, Bharti, reported FY11 results that met estimates with core profit 2% ahead of consensus (we use these for our SingTel forecasts). Consolidated topline was up 3% qoq, aided by elasticity gains in Africa and India though margins had dropped in India, partially offset by Africa. We make no adjustments to our earnings forecasts, SOP-based target price of S$3.29 and UNDERPERFORM rating for SingTel pending its results announcement on 12 May. Potential de-rating catalysts are regulatory risks in Thailand and competitive risks in Australia and Singapore.
The details
Lower qoq. Bharti’s consolidated revenue rose 3% qoq, aided by growth in both its Indian/South Asian (+3% qoq) and African operations (+3% qoq) as elasticity gains occurred in both markets. Consolidated EBITDA margins shed 0.3% pt qoq as India booked weaker margins (-0.7% pt qoq) excluding rebranding costs. This was partially offset by its African operations. The lower margins, higher interest expense from higher debt for 3G and Africa and tax caused core profit to fall 19% qoq.
More on India. Revenue grew 3% qoq on the back of increased elasticity. RPM slid only 2% qoq, pointing to intense but rational competition as RPMs have stabilised over the past few quarters. However, margins were hurt by higher network opex (addition of 3G sites, expansion in Bangladesh and Sri Lanka and its DTH business), higher access charges and spectrum fees. Mobile margins have been dropping, falling from 36.4% in 4Q10 to 33.3% in 4Q11 on higher spectrum fees.
3G and MNP. Bharti has launched 3G services in nine of the 13 circles for which it had won spectrum. It is awaiting clearance before proceeding with the remaining four circles. It is in talks with other leading operators to have a nationwide 3G presence. For MNP, there has not been much of an impact as only 1.1% of the subscriber base had requested to port and Bharti is capturing a disproportionate share of that number.
More on Africa. The bulk of tariff correction in Africa has been completed. It has also gained revenue market share in all the markets it operates in. Through the implanting
of its unique business model, it has begun to lower costs and costs/minute should continue to drop over the next 4-6 quarters. While pricing power is important, Bharti would look to reducing tariffs as costs continue to fall over this period. EBITDA margins rose 1% pts qoq (exclude re-branding initiative in 3Q) in 4Q11 and Bharti expects positive margins to continue as scale benefits flow through and as it cuts costs further. One area of potential margin concern is access charges which rose 12% qoq. Bharti is looking to drive more off-net traffic as it strives to have a more equal mix in on-net and off-net traffic. It expects the impact from traffic rebalancing to ease over the next two quarters. Other headwinds in Africa pertain to know-your-customer requirements in many countries in Africa which are more stringent than Indian requirements. Another headwind pertains to supply constraints from some strategic partners but this constraint is only expected to be short term.
DPS declared and capex guidance. Bharti declared a dividend of Rp1/share following its practice of declaring dividends in 4Q since its maiden dividend in 2009. For FY12, Bharti intends to spend US$2.9bn-3.1bn on capex. India would consume US$1.5bn, Africa, US$1bn-1.2bn and the tower business, US$0.4bn.
Valuation and recommendation
Maintain UNDERPERFORM. We make no adjustments to our forecasts, SOP-based target price of S$3.29 and UNDERPERFORM rating pending SingTel’s results on 12 May. Potential de-rating catalysts are regulatory risks in Thailand and competitive risks in Australia and Singapore.