Month: May 2012
SMRT – DMG
Persistent cost pressures
Core earnings within expectations. SMRT’s 4QFY12 core PATMI (this excludes S$21.7m impairment of goodwill) came in within expectations and was up 5% YoY to S$36m (-4% QoQ) while top-line rose 12% YoY to S$275m (+3% QoQ). Including the impairment, 4QFY12 and FY12 PATMI was down 59% YoY to S$14m and down 26% to S$120m respectively. Our concerns over SMRT’s current cost issues remain, with further downside risks pertaining to costs related to its rail upgrading and renewal plans. A final dividend of 5.7S¢ per share has been declared bringing total FY12 dividends to 7.45S¢ per share and reflecting a decent yield of 4.4%. Our TP remains unchanged at S$1.73 based on DCF implying a FY13 (FYE Mar) P/E of 17x. Maintain NEUTRAL.
Bottomline hit by impairment of goodwill on bus operations. The S$21.7m impairment charge was made due to adverse impact by substantial increases in bus operating costs which was less than offset by fare hikes. Going forward we see limited downside risks relating to this as intangible assets have been lowered to a smaller S$13.6m (as at 31 Mar 12) from S$35.3m (as at 31 Mar 11). 4QFY12 bus operations remained poor reporting operating losses of S$3.7m (+111% YoY, +118% QoQ) due to higher diesel and staff costs.
CCL ridership picking up; rail upgrading costs remain a concern. The average weekday ridership for CCL was up 17% QoQ to 350k in 4QFY12. This provides some relief as CCL ridership heads towards the estimated breakeven of ~450k/day. However, higher expected costs relating to SMRT’s rail upgrading and renewal plans remain a concern. 4QFY12 expenses (from mainly repair, maintenance and professional fees) arising from the Dec 12 MRT disruptions amounted to S$3m (~12% of 4QFY12 repair and maintenance expenses).
Fairly valued. SMRT does not appear cheap trading at 16x FY13 (FYE Mar) P/E versus ComfortDelGro’s 13x FY12 P/E. We believe SMRT’s share price may see limited upside given the potential costs involved in its rail upgrading and renewal plans. Investors will also be looking out for its CEO succession plans.
HLFin – DMG
Weaker 1Q12 earnings on reversion to provisions
Sharp earnings decline due mainly to general provisions. HLF reported 1Q12 net profit of S$16.7m, down 37% YoY. Whilst pre-provisioning operating profit was down a less severe 12% YoY to S$21.3m, provisions of S$1.2m (versus 1Q11’s write-back of S$7.6m) contributed to the severe earnings contraction. We cut FY12 net profit forecast by 17% to S$67.2m to reflect the 1Q12 weakness, as well as expectations of continued weakness in net interest income, as pricing for lending products remained under pressure. On a positive note, loans expanded 6.3% and deposits rose 8.2% QoQ, reflecting the balance sheet growth. We maintain our target price of S$2.42, which is pegged to 0.65x book. Neutral recommendation re-iterated.
Loans and deposits both grew strongly. Loans rose 6.3% QoQ or 22.3% YoY to S$7.92b. Deposits rose 8.2% QoQ or 14% YoY to S$8.4b. The strong deposit growth is a positive, as it provides scope for further loan expansion going forward.
Target P/B is between historical average and crisis low. HLF trades at a historical average P/B of 0.95x. With the uncertain economic environment, we do not see any catalyst driving its share price to that level. The soft pricing for lending products will also reduce investors’ interest in HLF. Our target P/B of 0.65x is a premium to the 2009 global financial crisis low of 0.5x.
SMRT – DBSV
Lower final DPS
• 4Q12 core results within expectations
• Final DPS was lower at 5.7 Scts (4Q11: 6.75 Scts)
• Maintain Fully Valued and S$1.50 TP
Highlights
4Q12 core profit was within expectations. Net profit dropped by 59% y-o-y to S$13.9m, while revenue grew by 12% to S$274.8m on higher ridership, taxis, rental and advertising revenues. The drop in profits arose from impairment of goodwill of its buses amounting to S$21.7m. Excluding this, 4Q profit would have increased by c.5% y-o-y, helped by a significantly higher contribution of S$2.2m from its associate (4Q11: S$0.1m). EBIT impacted by higher costs. EBIT (excl. goodwill impairment) fell 5% y-o-y to S$39.4m while margins dropped by 2.5ppts to 14.4% (3Q11: 16.9%). EBIT from train operations, largest contributor to the company, fell 22% y-o-y to S$19.9m, but this was partially helped by stronger contribution from the rental (S$16.4m, +14% y-o-y) and advertising (S$5.1m, +26% y-o-y) segments. In 4Q12, the major cost items that led to a drop in EBIT were electricity and diesel costs (S$42.4m, +37%), repair & maintenance (S$24.1m, +13%) and other operating expenses (S$53.1m, +15%).
Our View
A challenging time for rail. The series of breakdowns since last Dec has brought unprecedented negative focus on its rail operations. Not unexpectedly, the company will step up on its maintenance programme to take into account the aging of the system and to meet increased train runs. It recently announced an upgrading and renewal capex programme that would cost c.S$900m. Discussions with LTA regarding the cost sharing arrangements are ongoing.
Final DPS cut to 5.7 Scts could be the final straw. The challenges faced may have led to a lower final DPS of 5.7 Scts. This, in our view, could trigger a de-rating risk we mentioned in an earlier report on 18 Jan 2012 (“Disembark and move on”). We believe chances are high that its Board of Directors may no longer indicate that it would “endeavour to maintain or increase payout in terms of cents per share”. This, in our view, could be a final straw, particularly for those holding out for stable or higher dividends.
Recommendation
Maintain Fully Valued and S$1.50 TP. With valuations at 18.3x FY13F PE on projected lackluster growth going forward, we believe this counter is pricey. As such, we maintain our Fully Valued recommendation, with a TP of S$1.50, based on blended DCF/PE valuation.
SingTel – BT
Optus to slash 750 jobs for greater efficiencies
Most of the affected are managers and operations, support, back-office staff
SINGAPORE Telecommunications' Australian unit, Optus, will lay off 750 people, slashing almost 8 per cent of its workforce in a restructuring exercise.
In a statement yesterday, Optus said that the new structure is designed to drive greater efficiencies and give customers a stronger voice.
The retrenchments will mean slashing one out of every 12 Optus jobs. At end-2011, Optus employed about 9,700 people.
Telcos around the world have been rationalising their operations. In December, Optus's Australian rival, Telstra, cut 280 jobs.
SingTel – BT
Bharti's profit falls for 9th straight quarter
Bharti Airtel, India's biggest mobile-phone carrier by subscribers, reported its ninth straight quarterly profit decline, hurt by intense price competition, higher interest costs and foreign-exchange fluctuation losses.
The company, controlled by billionaire Sunil Mittal, has lost market share in the past year to smaller rivals in the country's fiercely competitive mobile market, where carriers operate on wafer-thin margins with cheap voice calls accounting for a bulk of revenue.
Mobile data, which offers higher margins, is at a nascent stage in India, and the takeoff of premium third-generation data services has been slower than what the industry had initially expected in a price-sensitive market.
Cellular operators, including Vodafone's local unit, have also been hit by fresh uncertainty in recent months after a court ordered cancellation of all mobile-phone permits awarded in a scandal-tainted sale in 2008.