Month: August 2011
TELCOs – OCBC
Decent 2QCY11 scorecard; maintain OVERWEIGHT
Decent 2CY11 showing. All the three telcos – M1, SingTel and StarHub – put in pretty decent showing in their 2QCY results recently, mostly meeting our forecasts, and largely demonstrating the defensive nature of their businesses. Both M1 and StarHub declared an interim and quarterly dividend of S$0.066/share and S$0.05, respectively.
Review of Singapore operations. SingTel continues to dominate the local telecoms market, with a ~46% share in the post-paid mobile market, followed by StarHub with ~28% and M1 ~26%. Collectively, we note that the post-paid subscriber base here grew by around 90k QoQ to 3912k; M1 added 13k, SingTel +57k, and StarHub +20k in the last quarter. And with the bulk of the phones sold continuing to be smartphones, we also see higher contribution from data as a percentage of post-paid ARPU (min of 36% for StarHub to a max of 41% for SingTel), although monthly ARPUs have already stayed largely flat at S$55 for M1, S$87 for SingTel and S$73 for StarHub. The broadband segment was generally quite lackluster for all the three telcos, hampered by the slower than-expected take-up of the new Fiber plans under NBN (National Broadband Network) initiative. The Pay TV segment for both SingTel and StarHub continued to show modest growth as households are increasingly getting used to the idea of having two set-top boxes.
2H11 outlook remains stable. Going forward, all the three telcos expect their Singapore operations to remain stable or show modest growth, buoyed by continued customer additions and increasing mobile data usage; note that StarHub though has nudged its revenue growth to low single-digit from single digit previously. We expect the three telcos’ EBITDA margins to remain around current levels – 42% for M1, 42% for SingTel and 30% for StarHub. Both M1 and SingTel have also kept their earlier capex guidances unchanged; but StarHub has pared its capex from 13% of revenue to 12%. And thanks to their strong cashflow-generative businesses, the telcos have largely kept their dividend payout guidance; M1 to pay at least 80% of underlying net profit; SingTel to pay 55-70% of underlying earnings; StarHub to pay S$0.20/share, or S$0.05/share per quarter.
Overweight on telcos. In light of the increased volatility in the market due to the unresolved uncertainties in Europe, the still floundering economic recovery in the US and potentially slowing economic growth in China, we continue to like the telcos’ defensive earnings and relatively attractive dividend yields. Maintain OVERWEIGHT. While we have BUY ratings on all three telcos, our preference is for M1 as we believe it has potentially the most to gain from the NBN in the coming two years.
TELCOs – DBSV
Sector offers >6% yield, 2Q11 Review
• M1’s higher gearing and weak free cash flow may limit earnings payout to 80%, below last year’s 100%.
• SingTel continues to gain mobile revenue share while StarHub is gaining non-mobile subscribers despite absence of English Premier League rights.
• StarHub is our top pick, trading at 7.4% yield (fixed 20 Scts DPS) versus 6% for M1 & SingTel.
A quick recap of 2Q2011 results. M1 & StarHub reported inline earnings while SingTel’s earnings were 5% below our expectations. SingTel disappointed on lower than expected earnings contribution from Bharti and Optus. Bharti was hit by 3G rollout costs and higher tax rate in India. Optus, on the other hand, witnessed higher mobile competition as smaller player VHA joined market share battle with incumbent Telstra.
StarHub (Buy, TP: S$3.05) is our top pick. StarHub’s free cash flow is likely to be ~120% of FY11F earnings, as the company pays minimal cash tax due to its deferred tax assets. StarHub has a fixed dividend policy of 5 Scts per quarter for FY11F. We believe this will be maintained in the coming years.
StarHub impressed in the non-mobile segment. Despite loss of EPL and ESPN rights, StarHub continued to gain pay TV subscribers with sequentially stable ARPU. Moderate subscriber growth in the broadband segment and stable ARPU also demonstrated solid execution.
M1 (Hold, TP: S$2.60) may not gear up significantly above its peers. At the end of 2Q11, M1 had net debt to annualized EBITDA of 1.1x versus 0.7x for StarHub and SingTel each as shown in the chart on the side. M1’s gearing spiked from borrowing S$81m to partly pay for FY10 dividends, as its free cash flow was very weak. Even FY11F free cash flow may be ~70% of FY11F earnings due to fair value accounting for handsets. In our view, investor should expect 80% earnings payout ratio.
SingTel (Hold, TP: S$3.20) continued to gain mobile revenue share in Singapore. This was driven by more attractive lineup of handsets and devices offered slightly ahead of peers, focus on pushing data SIM cards by bundling them with fixed broadband service and attractive discounts to subscribers on re-contracting. Peers do not emulate these tactics lest market should become more competitive.
SATS – BT
SATS unit enters into food catering JV with OCS Ventures
SATS Ltd announced on Thursday that its wholly owned subsidiary SATS Investments Pte Ltd (SIPL) will be incorporating a joint venture company in Singapore with investment holding company OCS Ventures Pte Ltd.
The new company, of which SIPL will hold a 51 per cent stake, will provide food and allied services to clients operating in remote areas around the world.
It will start off by focusing on clients from the oil, gas and marine, mining and industrial and infrastructure construction in the Asean, China, Australia, New Zealand and Papa New Guinea.
Acting CEO of SATS Tan Chuan Lye said that the joint venture will be an ‘important milestone in our strategy to extend the reach of our non-aviation food solutions business’.
‘This partnership will enable SATS to leverage our strong food solutions capabilities and uncompromised food safety standards to remote catering clients,’ he added.
The company will also ‘benefit tremendously from Singapore’s impeccable record of corporate governance and established reputation as a preferred global hub for multinational companies in sectors such as oil and gas, and marine’, said Raju Shete, founder and president of OCS Ventures.
ComfortDelgro – BT
ComfortDelGro’s Q2 net profit up 3% at $60m
The group declares an interim dividend of 2.7cents per share
COMFORTDELGRO Corporation posted a 3 per cent rise year on year in net profit to about $60 million for the second quarter ended June 30, while revenue increased 6.8 per cent to $843 million.
During the quarter, operating profit improved by 3.7 per cent to $103 million despite rising costs, especially for fuel and electricity. Earnings per share were 2.87 cents, up from 2.79 cents in Q2 2010.
The group has declared an interim dividend of 2.7 cents per share, payable Sept 1.
For the half-year ended June 30, net profit slipped 2.2 per cent to $110 million, dragged down by higher operating costs while group revenue climbed 5.8 per cent to $1.65 billion.
In Q2 2011, ComfortDelGro’s bus business saw revenue increase about 5 per cent to $419.5 million, as growth in Australia, Singapore and the UK helped to mitigate a decline in China.
The group’s taxi business saw revenue increase by 7.1 per cent to $255.6 million, with stronger contributions coming in from Singapore and Vietnam.
Revenue from the rail business rose 11.1 per cent to $33.3 million as average daily ridership for the North East Line and the Punggol and Sengkang LRTs grew by 15.7 per cent and 15.8 per cent to 418,000 and 57,000 respectively. Including rental and advertising income, total revenue from the rail business increased 10.2 per cent to $36.8 million.
Meanwhile, revenue contributions from its bus station business in Guangzhou, its vehicle inspection and testing services as well as its automotive engineering services were all higher in the second quarter.
The group’s overseas operations accounted for about 42 per cent of group revenue in Q2 2011, though the group aims to derive 70 per cent of its total revenue from overseas within the next four to six years.
‘The global economic uncertainty and the inflationary pressures in the countries we operate will continue to pose challenges for the group,’ said managing director and group CEO Kua Hong Pak. ‘However, with our strong balance sheet and low gearing, we will be well positioned to meet these challenges.’
Shares in ComfortDelGro closed at $1.26 yesterday, down one cent.
SingTel – BT
SingTel Q1 profit down 2.9% at $916m
Associate Bharti Airtel continues to weigh down its bottom line
Singapore Telecommunications’ first- quarter net profit dipped 2.9 per cent to $916 million, from $943 million last year as Indian associate Bharti Airtel continued to weigh down its bottom line.
Earnings per share for the three months ended June 30 slid to 5.75 cents, from 5.92 cents in 2010 while operating revenue rose 7.4 per cent to $4.6 billion during the period.
South-east Asia’s largest telco, which derives 77 per cent of its Ebitda – earnings before interest, tax, depreciation and amortisation – from overseas, was hit by a 10 per cent decline in pre-tax earnings contributions from its regional associates.
Its largest overseas foray, Bharti, was again the main culprit. Pre-tax contributions from the Indian operator dived 27 per cent to $154 million in the first-quarter due to a combination of higher domestic taxes as well as sustained losses in South Africa.
Bharti completed the acquisition of the African assets of Kuwaiti conglomerate Zain Group in the first quarter of last year.
Since then, SingTel’s quarterly profits have been repeatedly dampened by the financing costs associated with the mammoth US$10.7 billion buyout, However, there are fresh signs that the situation is on the mend.
‘Its (Bharti’s) transformation and restructuring plans (in South Africa) are going well,’ SingTel group chief executive officer Chua Sock Koong told reporters at a media conference yesterday.
According to SingTel’s international CEO Hui Weng Cheong, Bharti has been steadily growing its revenue and Ebitda in South Africa on the back of higher customer numbers and usage levels.
In India, the ‘downside’ in the first quarter was largely due to fair-value losses, higher taxes and the amortisation of Bharti’s 3G license fees, he explained.
Besides Bharti, contributions from Telkomsel also fell in the first quarter.
The share of pre-tax profits from SingTel’s Indonesian associate slid 4.8 per cent to $210 million due to weakening of the rupiah against the Singapore dollar.
Pakistani operator Warid and PBTL in Bangladesh continued to be in the red, with respective pre-tax losses of $12 million and $6 million.
Their decline was mitigated by improvements at SingTel’s associates in the Philippines and Thailand.
Pre-tax profit contributions from Globe and AIS climbed 10.3 per cent and 13 per cent to $49 million and $77 million respectively in Q1.
Optus, which accounts for 30 per cent of SingTel’s Ebitda, grew its first quarter net profit by 2.2 per cent to $213 million despite facing cutthroat competition.
In Australia, mobile operators have resorted to slashing tariffs to gain ground, Ms Chua said.
The appreciation of the Australian dollar also helped to cushion the impact of the price war on Optus’ first-quarter performance, she added.
Net profit from SingTel’s Singapore operations fell 11.7 per cent on year to $328 million as a result of higher pay-television content and service costs.
During the quarter, the group added a record 57,000 postpaid mobile subscribers to take its cellular customer base to 3.42 million.
It also grew its mio-TV tally by 21,000 users to 313,000 ahead the Barclays Premier League kickoff this weekend. Pay-TV contributed $23 million to the topline of its Singapore operations in Q1, the firm said.
On the home front, SingTel is expecting revenue boon from the disposal of its Internet assets over coming years.
Last month, the operator hived off some $1.89 billion in passive broadband infrastructure that is being used for the government- backed Next-Gen NBN (National Broadband Network). These assets, which include manholes, ducts and exchange buildings, are now held under a newly-minted Netlink Trust, which counts SingTel as the sole unit holder for now.
However, local authorities have ordered the firm to pare down its stake to less than 25 per cent by April 2014.
SingTel is looking at various options to meet this requirement. These include a possible initial public offering for Netlink Trust. It could also sell its stake to partners, Ms Chua said.
SingTel shares closed three cents lower at $2.92 yesterday.