Month: April 2012
M1 – DBSV
Difficult to find positives except 6% yield
• 1Q12 profit slightly below expectations. Net profit of S$40m (5% y-o-y) was slightly below expectations of S$42m. Higher postpaid acquisition cost (S$363, +10% y-o-y) and lower than expected “fixed service” revenue were key culprits.
• Slow growth in new business. Fixed service revenue stood at S$11.8m versus S$10.6m in 4Q11 as M1 added 7K fiber subscribers to take its base to 29K. Long waiting time in activating broadband subscriptions continues to be a challenge.
Our Views
• Mobile trends are not encouraging. Postpaid mobile market share declined for the fourth consecutive quarter to reach 25.9% versus 26.0% in 4Q11 & 26.6% in 1Q11. While smart phone subscribers comprise 69% of its postpaid subscriber base, they do not generate higher ARPU as M1 had projected in fair value accounting for handsets. Adjusted postpaid ARPU fell 6% y-o-y to S$52.9.
• Dividends safe but capital management unlikely in 2012/13. Regulator IDA plans to auction spectrum in 1800MHz, 2.3GHz and 2.5GHz bands in 2013. Telcos should be keen to acquire these spectrums as the current use for the 1800MHz band will expire in 2017 and the remaining two bands in 2015. M1 had previously bi S$21.7m for 30 MHz block of 1800MHz spectrum in April 2011 valid for 7 years. The new spectrums auctioned will be valid for 13 15 years and therefore hold more value for telcos.
Recommendation
• HOLD for 6% dividend yield. The stock is trading at 13x FY12F PE (+1SD valuations). Among the telcos, StarHub is the most expensive at 17.5x (+2SD valuations) and 6% yield. SingTel is the cheapest at 12x (hist. average) and offers superior growth plus 5% yield, although it is in the middle of re-organization.
STEng – Kim Eng
4 business pillars, 1 growth model
A mega contract in the bag. ST Engineering’s (STE) marine arm, ST Marine, has bagged its largest order in recent years – an S$880m contract to design and build four patrol vessels for the Royal Navy of Oman. This was welcome news, coming on the back of ST Kinetic’s recent blacklisting by India for its alleged involvement in a bribery scandal. It also confirms that STE’s reputation as a defence engineering specialist is untarnished.
Multi-pillar earnings growth model. ST Aerospace, STE’s largest revenue contributor, also reported significant contract wins in 1Q12 that amounted to S$550m. The increase in defence expenditure by the government and its push for a more efficient public transportation system should augur well for ST Electronics and ST Kinetics as well. Taken together, these factors would continue to drive STE’s growing orderbook, thereby providing earnings visibility for the near future.
Healthy dividend payout. STE has a strong history of dividend payment, even in the absence of a formal policy. It typically pays out approximately 90% of its earnings. We do not expect any major change to this assumption and believe that its yield of 5% is sustainable.
Reputation untarnished, upgrade to Buy. We believe that the latest contract win by ST Marine reaffirms STE’s reputation as a global defence engineering specialist. Its multi-pillar strategy should also offer comprehensive support for growth, prompting us to raise our forecasts to account for a more visible earnings outlook, especially from ST Marine. Our target price thus goes up from $2.88 to $3.60, pegged at the historical PER mean of 19x FY12 earnings and providing upside of 16% (including FY12F dividend of $0.17). Upgrade to Buy.
SMRT – Lim and Tan
• We are less concerned today about the fate of the 6.75 cents per share final dividend for ye Mar ’12.
• While hearings before the Committee of Inquiry will last 6 weeks, yesterday’s opening session (essentially “finger pointing” by LTA, which owns the train infrastructure, and SMRT, the operator) suggests the final outcome may not be as dire for SMRT as feared immediately after the Dec 15/17 incidents.
(Indeed, SMRT’s share price has “rebounded” above the many-times tested $1.73 technical support since the train operator announced on Mar 28th it had completed its internal investigations into the unfortunate incidents.)
• SMRT asserted it has even exceeded the maintenance requirements set not just by LTA but manufacturers of the metal wheels of the trains, and that the ageing infrastructure is to be blamed.
• SMRT has been paying 8.5 cents a share for a few years now, costing $129 mln based on latest issued capital. Profit for 9 months ended Dec ’11 has amounted to $106 mln, and operating cash flow of $200 mln. Besides, SMRT has $182 mln cash after reducing borrowings by $100 mln to $150 mln.
• SMRT will release results for Q4 / Full year ending Mar ’12 on Monday Apr 30th.
• The 4.8% yield justifies at least a HOLD.
SPH – DBSV
Hold for decent sustainable yields
At a Glance
• 2Q12 within expectations; 1H12 forms 46% of our estimates similar to previous years
• Rental income shines, while Newspaper & Magazines posted anemic growth
• 7 Scts interim DPS declared; expect full year DPS of 24 Scts
• Hold for 6.2% yield, TP unchanged at S$4.01
Comment on Results
2Q within expectations; 7 Scts interim dividend declared. Net profit grew by 12% y-o-y to S$84.1m, aided largely by stronger rental property income and a tax write-back of S$1.2m. Interim DPS of 7 Scts was declared, as expected. Book closure will be on 9 May, with payment on 23 May.
Rental income from property shines. Total revenue growth was subdued at 4% y-o-y to S$298.5m. By segments, Newspaper and Magazines registered flat revenue growth (S$234.5m, +0.1%) while Property rental revenue increased strongly by 22% to S$48m, supported largely by a full quarter contribution from Clementi Mall (+S$7.8m to S$9.2m) vs partial in 2Q11. EBIT margins rose 1.4ppt y-o-y to 32.4% as operating costs increased by slower 2.2%. Staff costs decreased by a marginal 0.3%, but costs such as newsprint (+3.5%), depreciation (+6.8%) and other operating expenses (+6.3%) headed higher.
Print ad growth in line with our FY12F for flat growth. Revenue from print ads rose a marginal 0.8% y-o-y in 2Q12, versus the 1.3% decline in 1Q12. The cautious employment market took a toll on recruitment ads, which contributed to a 9% dip in classified ad revenue. Display ads, however, improved 4% helped by the property and auto sectors. 1H12 print ad revenue was down a marginal 0.3% y-o-y, on track to meet our assumption for flat growth for the year.
Recommendation
Hold for 6.2% yield, TP remains at S$4.01. We see share price trading within a narrow range on the back of an uncertain global economic environment, with support from its attractive 6.2% yield. Maintain Hold for 9% total return to S$4.01 TP.
M1 – Phillip
High Mobile Churn, Slow Fibre Growth
Company Overview
M1 is the 3rd largest Telecommunications company in Singapore. The introduction of NGNBN in Singapore lowered entry barriers to the Fixed Line business, which would allow M1 to venture into the corporate and retail broadband market.
• 5% decline in profits on 2% growth in sales
• Fibre take up remains slow at 7k/qtr
• High mobile churn rate of 1.5%
• Maintain Reduce with TP of S$2.38
What is the news?
M1 reported revenue increase of 2% attributable to growth in Mobile Services revenue & Fixed Services revenue. Growth in Mobile Services revenue was mainly due to a larger customer base, while Fixed Services revenue improved with a gradual increase in broadband subscriber base (Overall: 50k; Fibre: 29k). EBITDA margin on service revenue declined 2.1ppt as the increase in operating costs outpaced the growth in revenue. Postpaid mobile churn of 1.5% in the quarter was at the highest level since 2QFY10.
How do we view this?
The results were largely in line with our expectations. Despite aggressive pricing by M1, the company’s growth in fibre subscriber base remains slow at a run rate of 7k subscribers in a quarter. We believe that M1’s fixed line business would not be able to contribute meaningfully to its bottom line for at least another year.
Investment Actions?
We tweaked our estimates slightly and maintain our Reduce rating on M1.