Month: June 2012
SingPost – Kim Eng
Parcel Is the New Mail
All the right moves, reiterate BUY. As its restructuring continues, we believe that SingPost is making all the right moves to fend off the negative impact from the sustained decline in global physical mail volume. Our visit to the company last week reaffirmed our view that investors stand to benefit in the long term from its transformation while being protected in the short-to-medium term by its stable dividend payout. We reiterate our BUY call with a target price of SGD1.10 based on 5.7% yield, the average of the top 15 dividend yield stocks in the Maybank Kim Eng coverage universe.
Five pillars, over 20 initiatives. In the face of dwindling global mail volume, newly-minted CEO Dr Wolfgang Baier has introduced the “five pillars” concept, which encompasses over 20 initiatives, in his bid to move SingPost to a new business model. At the core of the strategy is diversification both geographically and product-wise. In our view, the parcel business has a better chance of taking off first, as the investments in Quantium and vPOST are starting to pay off.
Large-scale acquisitions this year or next to surprise the market. SingPost currently sits on a cash balance of SGD617m after the issue of perpetual securities worth SGD350m in Mar 2012. The market has been slightly disappointed that its acquisitions since 2009 have all been small in scale. But it is possible that SingPost would spring a surprise this year – or next – with some large-scale acquisitions.
More cost efficient than peers. While cost pressure will persist in the next few years, we believe that SingPost is one of the most cost-efficient postal organisations among its peers, thanks to its investments in automation and geographical divestment.
Sufficient cash flow to support dividend payout. SingPost has committed to a minimum dividend payout of SGD5cents per share pa. However, based on its operating cash flow generation and recent fund-raising, we believe that it is well able to maintain its track record of SGD6.25cents per share.
SATS – Kim Eng
Cruise or Fly, Still a Buy
Tourism boom in Singapore. Recent visitor statistics have shown an encouraging uptrend despite the volatile economic situation stemming from the European debt crisis. Tourists have not only continued to make Singapore one of their preferred destinations (2011 visitor arrivals +13% YoY), but also increased their spending, leading to an 18% YoY growth in tourist receipts to SGD22.3b for 2011. Together, these figures support the notion of a sustainable tourism boom that Singapore is currently experiencing and which SATS is well-placed to benefit from.
Aviation passengers dominate growth. The aviation visitor segment has shown standout growth of 15% YoY to breach the 10m visitor mark for 2011, backed by the proliferation of budget airline flights to-and-from Singapore. SATS’ key market segment remains the aviation-related space (84% of FY3/12 revenue), and with the Singapore Tourism Board forecasting a further 10% increase in visitor arrivals for 2012, the outlook remains rosy for the company.
Cruise terminal in infancy but a good complement. SATS’ JV with Creuers (SATS-Creuers) to operate Singapore’s newest Marina Bay Cruise Centre welcomed its first vessel on 26 May 2012. While we believe that significant earnings contributions will only accrue to SATS in the medium term, we remain positive that this foray into the cruise terminal operating business will only serve to widen its expansion capabilities within the gateway services space.
Maintain BUY, don’t miss the bumper dividend. Though mindful of the risks ahead for SATS, our optimism continues to be buoyed by its resilient earnings, healthy balance sheet and attractive dividend yields. We maintain our BUY recommendation and target price of SGD3.04, based on 17x FY3/13F earnings. Investors buying in now stand to enjoy the bumper dividend of SGD0.21 per share, which goes ex-dividend on
31 July.
SATS – Kim Eng
Cruise or Fly, Still a Buy
Tourism boom in Singapore. Recent visitor statistics have shown an encouraging uptrend despite the volatile economic situation stemming from the European debt crisis. Tourists have not only continued to make Singapore one of their preferred destinations (2011 visitor arrivals +13% YoY), but also increased their spending, leading to an 18% YoY growth in tourist receipts to SGD22.3b for 2011. Together, these figures support the notion of a sustainable tourism boom that Singapore is currently experiencing and which SATS is well-placed to benefit from.
Aviation passengers dominate growth. The aviation visitor segment has shown standout growth of 15% YoY to breach the 10m visitor mark for 2011, backed by the proliferation of budget airline flights to-and-from Singapore. SATS’ key market segment remains the aviation-related space (84% of FY3/12 revenue), and with the Singapore Tourism Board forecasting a further 10% increase in visitor arrivals for 2012, the outlook remains rosy for the company.
Cruise terminal in infancy but a good complement. SATS’ JV with Creuers (SATS-Creuers) to operate Singapore’s newest Marina Bay Cruise Centre welcomed its first vessel on 26 May 2012. While we believe that significant earnings contributions will only accrue to SATS in the medium term, we remain positive that this foray into the cruise terminal operating business will only serve to widen its expansion capabilities within the gateway services space.
Maintain BUY, don’t miss the bumper dividend. Though mindful of the risks ahead for SATS, our optimism continues to be buoyed by its resilient earnings, healthy balance sheet and attractive dividend yields. We maintain our BUY recommendation and target price of SGD3.04, based on 17x FY3/13F earnings. Investors buying in now stand to enjoy the bumper dividend of SGD0.21 per share, which goes ex-dividend on
31 July.
SPH – OCBC
RESILIENT RETAIL MALLS
•Retail rentals to be relatively resilient
•Growth in retail landlord segment
•Further pressure on ad revenues likely
Resilient retail mall landlord business
In the face of an increasingly uncertain macro environment, we expect SPH’s retail landlord business to provide a stable counterweight to its core print business which is expected to face pressure from dipping ad demand. The retail business, comprising of the Paragon and the Clementi Mall, contributed S$47.9m of profits before tax (PBT) in 1HFY12, making up a respectable 22% of total PBT. Given the limited retail pipeline in the Orchard area over FY12-13 (est. 543k sq ft net floor area), we expect rentals at the Paragon to stay relatively resilient. In addition, we expect the strategic location of the Clementi Mall, now fully leased, at Clementi MRT station and strong foot traffic of 60k daily to underpin rental levels.
Expect growth in retail mall segment
Going forward, SPH’s retail landlord business is set to grow with the expected completion of the Sengkang commercial development by 2016. Won in a tender in Jan 2012 for S$328m, the 99-year Sengkang site is expected to yield a retail mall with ~284k sq ft GFA which would add another suburban mall similar to the size of Clementi Mall into SPH’s retail portfolio. We also believe that SPH’s 70:30 partnership with UEL would create considerable synergy between UEL’s property development experience and SPH’s mall management capabilities. Moreover, with group investible funds at S$0.9b as of end Mar 2012, we believe there is sufficient capacity for SPH to allocate additional capital into its retail strategy ahead.
Maintain BUY at unchanged S$4.05 fair value estimate
For the current fiscal year, however, we expect to see sustained downward pressure on SPH’s core print advertisement and circulation business as demand softens in an increasingly uncertain macro environment. In 1HFY12, we saw newspaper ad revenue dip 2.3%, driven mostly by falling classified ad demand which fell 6.5%. On the other hand, newsprint costs are expected to stay relatively stable ahead and we believe SPH has some flexibility in managing staff costs should the top-line weaken further. Maintain BUY with an unchanged fair value estimate of S$4.05.
SPH – OCBC
RESILIENT RETAIL MALLS
•Retail rentals to be relatively resilient
•Growth in retail landlord segment
•Further pressure on ad revenues likely
Resilient retail mall landlord business
In the face of an increasingly uncertain macro environment, we expect SPH’s retail landlord business to provide a stable counterweight to its core print business which is expected to face pressure from dipping ad demand. The retail business, comprising of the Paragon and the Clementi Mall, contributed S$47.9m of profits before tax (PBT) in 1HFY12, making up a respectable 22% of total PBT. Given the limited retail pipeline in the Orchard area over FY12-13 (est. 543k sq ft net floor area), we expect rentals at the Paragon to stay relatively resilient. In addition, we expect the strategic location of the Clementi Mall, now fully leased, at Clementi MRT station and strong foot traffic of 60k daily to underpin rental levels.
Expect growth in retail mall segment
Going forward, SPH’s retail landlord business is set to grow with the expected completion of the Sengkang commercial development by 2016. Won in a tender in Jan 2012 for S$328m, the 99-year Sengkang site is expected to yield a retail mall with ~284k sq ft GFA which would add another suburban mall similar to the size of Clementi Mall into SPH’s retail portfolio. We also believe that SPH’s 70:30 partnership with UEL would create considerable synergy between UEL’s property development experience and SPH’s mall management capabilities. Moreover, with group investible funds at S$0.9b as of end Mar 2012, we believe there is sufficient capacity for SPH to allocate additional capital into its retail strategy ahead.
Maintain BUY at unchanged S$4.05 fair value estimate
For the current fiscal year, however, we expect to see sustained downward pressure on SPH’s core print advertisement and circulation business as demand softens in an increasingly uncertain macro environment. In 1HFY12, we saw newspaper ad revenue dip 2.3%, driven mostly by falling classified ad demand which fell 6.5%. On the other hand, newsprint costs are expected to stay relatively stable ahead and we believe SPH has some flexibility in managing staff costs should the top-line weaken further. Maintain BUY with an unchanged fair value estimate of S$4.05.