Month: May 2011
SingPost – OCBC
Prioritising for the future
4QFY11 results in line with expectations. Singapore Post (SingPost) reported a 7.7% rise in revenue to S$565.5m and a 2.4% drop in net profit to S$161.0m in FY11, such that results were 0.8% and 3% shy of our estimates, respectively. However, if we were to exclude one-off items such as the amortization of deferred gain on intellectual property rights, and benefits from the Jobs Credit Scheme, underlying net profit actually rose by 1.2%. Free cash flow (net cash inflow from operating activities less capex) remained healthy at S$174.6m in FY11 compared to S$196m and S$155m in FY10 and FY09, respectively.
Decent performance from mail and logistics. The mail and logistics segments registered better performances in 4QFY11, with the former growing 4.3% YoY and the latter by 11.6%. Domestic mail traffic increased on the back of a buoyant business environment, while international mail traffic rose in tandem with the growth in e-commerce activities. Higher logistics revenue was mainly due to higher contributions from Speedpost, trans-shipment and vPOST shipping activities.
Prioritising for the future. SingPost has laid out its priorities for the future: 1) to grow regional logistics, focusing on warehousing, fulfillment and end-delivery in Asia Pacific, 2) grow the e-fulfilment business by strengthening Quantium Solutions, and 3) drive growth through e-commerce. The group is keen to grow the logistics business, and is looking at building a full suite of services in order to scale up the value chain. If executed well, this should result in higher margins compared to a company with pure logistics operations (industry is currently competitive, resulting in relatively low margins). Meanwhile, the group is also banking on the e-commerce business which holds potential for growth – Singaporeans are spending more on online shopping, purchasing from both local and overseas merchants.
Maintain HOLD. In line with the group’s usual practice, a final dividend of 2.5 S cents per share has been recommended, bringing the full year dividend to 6.25 S cents. This translates to a 5.4% dividend yield based on last closing price. We continue to like the stock for the stable cash flows and prudent management, and await more news on the M&A front. Our fair value estimate increases to S$1.21 (prev. S$1.16) as we roll forward our DCF valuation (8.11% cost of equity, 2% terminal growth). However, given limited upside potential, we maintain our HOLD rating.
SMRT – DBSV
4Q above, but cost headwinds linger
At a Glance
• 4Q/FY11 results above ours but within consensus’ expectations
• Strong 4Q growth due to low base in 4Q10 and lower-than-expected rise in electricity, diesel and staff costs
• Cost concerns likely to linger, especially with volatile oil price, which is unhedged
• Maintain Hold, TP revised slightly to S$2.08
Comment on Results
4Q/FY11 results in above. SMRT’s 4Q net profit at S$34m (+50% y-o-y) was above ours, but within market expectations. FY11 posts a marginal decline of 1.1% in net profit to S$161.1m, vs our forecast of S$148m due to a lower than expected rise in electricity/diesel, and staff costs. 4Q EBIT margins improved to 16.9% (4Q10: 12%) as costs rose by a slower clip than topline. A 6.75 Scts final dividend was proposed; coupled with interim dividend of 1.75 Scts equates to a payout of 80% (FY10: 8.5 Scts).
Rail and rental remain key EBIT contributors, collectively accounting for c.97% of Group’s EBIT. This is partially offset by losses from Taxis (-S$3.9m), Buses (-S$1.8m), and LRT (-S$0.1m). Taxi losses came about from higher depreciation, insurance costs, and write off of property, plant and equipment.
Circle Line (CCL) still below breakeven, but losses narrowed. Average ridership at CCL is currently around 180k/day, which is a marked improvement from the 30k/day when it first started. Operating losses continued, but has narrowed, as it is still below the 200k/day, which is estimated for breakeven.
Recommendation
Maintain Hold, TP revised slightly to S$2.08. Despite a better than expected performance in 4Q, we expect cost pressures to continue to plague the bottomline. This should come about from the volatile oil prices (which currently remains unhedged), coupled with higher staff costs. We believe these concerns will linger and cap share price gains in the near future, with support from a healthy yield of c.4.5%. As such, we maintain our Hold recommendation with a PE/DCF backed TP of S$2.08.
SMRT – DBSV
4Q above, but cost headwinds linger
At a Glance
• 4Q/FY11 results above ours but within consensus’ expectations
• Strong 4Q growth due to low base in 4Q10 and lower-than-expected rise in electricity, diesel and staff costs
• Cost concerns likely to linger, especially with volatile oil price, which is unhedged
• Maintain Hold, TP revised slightly to S$2.08
Comment on Results
4Q/FY11 results in above. SMRT’s 4Q net profit at S$34m (+50% y-o-y) was above ours, but within market expectations. FY11 posts a marginal decline of 1.1% in net profit to S$161.1m, vs our forecast of S$148m due to a lower than expected rise in electricity/diesel, and staff costs. 4Q EBIT margins improved to 16.9% (4Q10: 12%) as costs rose by a slower clip than topline. A 6.75 Scts final dividend was proposed; coupled with interim dividend of 1.75 Scts equates to a payout of 80% (FY10: 8.5 Scts).
Rail and rental remain key EBIT contributors, collectively accounting for c.97% of Group’s EBIT. This is partially offset by losses from Taxis (-S$3.9m), Buses (-S$1.8m), and LRT (-S$0.1m). Taxi losses came about from higher depreciation, insurance costs, and write off of property, plant and equipment.
Circle Line (CCL) still below breakeven, but losses narrowed. Average ridership at CCL is currently around 180k/day, which is a marked improvement from the 30k/day when it first started. Operating losses continued, but has narrowed, as it is still below the 200k/day, which is estimated for breakeven.
Recommendation
Maintain Hold, TP revised slightly to S$2.08. Despite a better than expected performance in 4Q, we expect cost pressures to continue to plague the bottomline. This should come about from the volatile oil prices (which currently remains unhedged), coupled with higher staff costs. We believe these concerns will linger and cap share price gains in the near future, with support from a healthy yield of c.4.5%. As such, we maintain our Hold recommendation with a PE/DCF backed TP of S$2.08.
SMRT – Phillip
FY11 results within Expectations
•Flat profit growth in FY11 within expectations
•Factored in expectations of higher depreciation and energy expenses
•Trimmed profit estimates by 2.8-6.8% for FY12-13E
•Proposed final dividend of 6.75C
•Maintain Buy with revised target price of S$2.22
FY11 results discussion
Despite the 8.3% growth in revenue, SMRT recorded a slight decline in net profit of S$161.1mn for FY11. The main sources of profit margins erosion came from a 6% increase in staff cost and a 17% increase in energy expense. Despite fairly similar average headcounts for both years, staff cost was higher in FY11 as there was lower jobs credit shield as compared to FY10. Energy cost was higher due to increased train runs following the commencement of CCL operations in April 2010 and higher average unit energy cost. Overall, the results were in line with our expectations of S$162.1mn.
Valuation
We used a blended valuation model of DCF (COE: 7.2%, terminal g: 1%) and P/E (18.0X FY12e PATMI) to arrive at our target price of S$2.22. Our reduction in target price from S$2.30 is mainly due to reduced profit estimates after factoring higher energy & depreciation expense in our forecasts. We keep our buy recommendation unchanged and expect a total return of 21.2% after incorporating a dividend yield of 4.5%.
Segmental discussion
MRT, LRT and Bus revenue increased by 6.7-9.6%, despite lower average fares following the implementation of distance based fare system and fare reduction exercise in FY11. This revenue increase was attributable to a 7.5-12.6% increase in ridership on the rail and bus systems. Both the Bus and LRT business continued to record losses, while MRT business recorded a 13% decline in EBIT contributions. Circle line’s (CCL) ridership continued to grow for the quarter to 181k, but is expected to continue making losses. CCL Stages 4 & 5 is scheduled to open in October 2011 and we expect significant increase in rail ridership towards the end of FY12.
Ancillary businesses were the key support to the Group’s profits as both advertising and rental operations recorded a 13% increase in sales. In FY11, ancillary business (rental, advertising & engineering) contributed 45% to the EBIT of the Group.
Forecasts and guidance
The only major surprise during the results briefing would probably be the guidance for S$600mn of CAPEX to be spent in FY12, which is significantly higher than the S$91-139mn/yr of CAPEX over the past 5yrs. This would be spent mainly for 22 trains (c.S$300mn), buy-over of Changi & Dover (c.S$100mn), 50 buses and fleet renewal for taxis. We believe that this would result in a significant increase in depreciation expense for FY12. Based on the cash balance of S$376mn on the books, we also believe that debt issuance is likely in order to maintain a more balanced capital structure. Hence, we factored in an increase of S$300mn in debt into our forecasts.
SMRT also guided for an expected increase in rental revenue of S$7mn for FY12, following the expected opening of Orchard Exchange (2,300sqm) in the second quarter of 2011 and the completion of renovations at several other stations throughout FY12. As rental operations are highly profitable (EBIT margin: c.77%), we believe that this incremental rental revenue would give a substantial boost to the bottom line of the group.
Overall, we do not expect FY12 to record exciting profits as the expected increase in ridership would likely be offset by higher operating expenses. Following the opening of CCL stage 4 & 5 in Oct, we expect profit growth to bottom out in the coming financial year before growing in FY13. After incorporating the new information, we trimmed profit estimates by 2.8-6.8% for FY12-13E.
SMRT – Phillip
FY11 results within Expectations
•Flat profit growth in FY11 within expectations
•Factored in expectations of higher depreciation and energy expenses
•Trimmed profit estimates by 2.8-6.8% for FY12-13E
•Proposed final dividend of 6.75C
•Maintain Buy with revised target price of S$2.22
FY11 results discussion
Despite the 8.3% growth in revenue, SMRT recorded a slight decline in net profit of S$161.1mn for FY11. The main sources of profit margins erosion came from a 6% increase in staff cost and a 17% increase in energy expense. Despite fairly similar average headcounts for both years, staff cost was higher in FY11 as there was lower jobs credit shield as compared to FY10. Energy cost was higher due to increased train runs following the commencement of CCL operations in April 2010 and higher average unit energy cost. Overall, the results were in line with our expectations of S$162.1mn.
Valuation
We used a blended valuation model of DCF (COE: 7.2%, terminal g: 1%) and P/E (18.0X FY12e PATMI) to arrive at our target price of S$2.22. Our reduction in target price from S$2.30 is mainly due to reduced profit estimates after factoring higher energy & depreciation expense in our forecasts. We keep our buy recommendation unchanged and expect a total return of 21.2% after incorporating a dividend yield of 4.5%.
Segmental discussion
MRT, LRT and Bus revenue increased by 6.7-9.6%, despite lower average fares following the implementation of distance based fare system and fare reduction exercise in FY11. This revenue increase was attributable to a 7.5-12.6% increase in ridership on the rail and bus systems. Both the Bus and LRT business continued to record losses, while MRT business recorded a 13% decline in EBIT contributions. Circle line’s (CCL) ridership continued to grow for the quarter to 181k, but is expected to continue making losses. CCL Stages 4 & 5 is scheduled to open in October 2011 and we expect significant increase in rail ridership towards the end of FY12.
Ancillary businesses were the key support to the Group’s profits as both advertising and rental operations recorded a 13% increase in sales. In FY11, ancillary business (rental, advertising & engineering) contributed 45% to the EBIT of the Group.
Forecasts and guidance
The only major surprise during the results briefing would probably be the guidance for S$600mn of CAPEX to be spent in FY12, which is significantly higher than the S$91-139mn/yr of CAPEX over the past 5yrs. This would be spent mainly for 22 trains (c.S$300mn), buy-over of Changi & Dover (c.S$100mn), 50 buses and fleet renewal for taxis. We believe that this would result in a significant increase in depreciation expense for FY12. Based on the cash balance of S$376mn on the books, we also believe that debt issuance is likely in order to maintain a more balanced capital structure. Hence, we factored in an increase of S$300mn in debt into our forecasts.
SMRT also guided for an expected increase in rental revenue of S$7mn for FY12, following the expected opening of Orchard Exchange (2,300sqm) in the second quarter of 2011 and the completion of renovations at several other stations throughout FY12. As rental operations are highly profitable (EBIT margin: c.77%), we believe that this incremental rental revenue would give a substantial boost to the bottom line of the group.
Overall, we do not expect FY12 to record exciting profits as the expected increase in ridership would likely be offset by higher operating expenses. Following the opening of CCL stage 4 & 5 in Oct, we expect profit growth to bottom out in the coming financial year before growing in FY13. After incorporating the new information, we trimmed profit estimates by 2.8-6.8% for FY12-13E.