Month: September 2012
STEng – CIMB
MRO and defence myths busted
In our recent roadshow to Hong Kong, STE busted a few myths, includingthat of lower MRO demand fromnew aircraft joining the aviation industry and the adverse impact of cuts in global defence budgets on STE’s defence business.
Maintain Outperform with anupgradedtarget priceafter rollingforward our blended valuations (19x CY14 P/E, dividend yieldsand DCF). We like STE for its S$630m war chest, above-peers ROEsof 30% and generous payouts of 90%, sustaining yieldsat5%. Catalysts include M&As and stronger Aerospace margins.
What Happened
During our road show, management clarified that although newer planes could be equipped with higher composites that would require lessermaintenanceofairframes, the bulk of the global fleet is still built on older technologies,making MRO an integral expense foroperators. Secondly, STE is gaining MRO market share in the US,thanks to anexodusof competitorssuch asAir Canada’s in-house MRO, Aveos, PEMCO World Air Services, American Airlines’s internal MROand Aviation Technical Services.Finally,STE’s proven capabilities indifferentclassesof aircraft could allow the group to capture strong demand for freighters.Airbus forecasts that about 1,800 conversions would be needed by 2022.
STE derives itsdefence business mainly from itsLand Systems division, where Singapore accounts for about 60% of the revenue. Singapore’s defence budget has been growing steadily at a 4.1% 10-year CAGR, and should continue to provide a baseload to STE.
What We Think
Having expanded its order book by 30% to a record S$12.7bnsince the GFC, we think STE has emerged more defensive, withAerospace, Electronics and Marine nowbetter prepared for downturns. STE’s net cash bodes well for its search for M&As. We expect some successful earnings-accretive M&As byAerospace, Marine and Electronicssoon, going bySTE’s aggressive hunt for bargains.
What You Should Do
Stay invested.STE ranks among the top-15 dividend-yield companies in Singapore,ex-REITs. Its premium valuations are largely predicated on its dividend payouts, which we believe aresustainable.
M1 – CIMB
Matching SingTel’s 4G prices
M1 does not appear to be trying to claw back market share, judging from the pricing of its new 4G small screen data plans, which closely mirror that of SingTel. M1 priced its 4G plans 5-27% above its 3G plans and 2-3% below SingTel’s.
Not surprisingly, it reduced its data bundles, mirroring SingTel, to better monetise data. The pricier 4G plans and reduced data bundles will help bolster its ARPUs. We maintain Neutral on M1 with a DCF-based target price (WACC 7.6%) and advocate a switch to StarHub, which offers higher dividend yields and potential for capital management.
What Happened
M1 launched new small and large screen data plans and introduced nationwide 4G services. The key takeaways from the unveiling are:
1) M1’s 4G plans are S$10.70/month or 5-27% more expensive than its equivalent 3G plans and 2-3% below similar SingTel plans.
2) M1 reduced voice bundles, threw in more SMS and raised the price of its top-end plan marginally compared to its previous small screen data plans (Figures 1 and 2).
3) Not surprisingly, it divided data bundles from a flat 12GB to tiered amounts of 2GB, 3GB, 5GB and 12GB, mirroring SingTel.
4) M1 also launched 4G large screen data plans.
The key difference between the operators’ plans is recontracting M1 users will be given extra 1GB data on the new small and large screen plans.
What We Think
We view M1’s upward repricing and tiering of data bundles positively but they are unlikely to help the telco claw back market share (Figure 5) as they are very similar to that of SingTel. Throwing in 1GB extra for recontracting users will help it retain customers but, overall, will not appeal to non-M1 customers. SingTel’s offerings are still more attractive as it also offers bundling discounts for pay TV and broadband. That said, the pricier 4G plans and reduced data bundles will help M1 bolster its ARPUs will help bolster its ARPUs.
What You Should Do
Switch out to StarHub, our top telco pick for its potential to raise dividends or undertake a one-off capital repayment, especially following its plan to sell bonds. M1 lacks re-rating catalysts and the above developments do not change our view.
M1 – CIMB
Matching SingTel’s 4G prices
M1 does not appear to be trying to claw back market share, judging from the pricing of its new 4G small screen data plans, which closely mirror that of SingTel. M1 priced its 4G plans 5-27% above its 3G plans and 2-3% below SingTel’s.
Not surprisingly, it reduced its data bundles, mirroring SingTel, to better monetise data. The pricier 4G plans and reduced data bundles will help bolster its ARPUs. We maintain Neutral on M1 with a DCF-based target price (WACC 7.6%) and advocate a switch to StarHub, which offers higher dividend yields and potential for capital management.
What Happened
M1 launched new small and large screen data plans and introduced nationwide 4G services. The key takeaways from the unveiling are:
1) M1’s 4G plans are S$10.70/month or 5-27% more expensive than its equivalent 3G plans and 2-3% below similar SingTel plans.
2) M1 reduced voice bundles, threw in more SMS and raised the price of its top-end plan marginally compared to its previous small screen data plans (Figures 1 and 2).
3) Not surprisingly, it divided data bundles from a flat 12GB to tiered amounts of 2GB, 3GB, 5GB and 12GB, mirroring SingTel.
4) M1 also launched 4G large screen data plans.
The key difference between the operators’ plans is recontracting M1 users will be given extra 1GB data on the new small and large screen plans.
What We Think
We view M1’s upward repricing and tiering of data bundles positively but they are unlikely to help the telco claw back market share (Figure 5) as they are very similar to that of SingTel. Throwing in 1GB extra for recontracting users will help it retain customers but, overall, will not appeal to non-M1 customers. SingTel’s offerings are still more attractive as it also offers bundling discounts for pay TV and broadband. That said, the pricier 4G plans and reduced data bundles will help M1 bolster its ARPUs will help bolster its ARPUs.
What You Should Do
Switch out to StarHub, our top telco pick for its potential to raise dividends or undertake a one-off capital repayment, especially following its plan to sell bonds. M1 lacks re-rating catalysts and the above developments do not change our view.
StarHub – CIMB
Calling for capital management with bond issuance?
We believe that StarHub’s planned issuance of a S$220m bond is a potential step towards a special dividend or increasing its dividend payout. This reinforces our view that StarHub is ripe for capital management given its low and rapidly-falling gearing level.
The bond issuance will be useful for Starhub given the impending spectrum auction, probably in 1H13. We maintain Outperform, with an unchanged DCF-based target price (WACC 7.9%, LTG 1.4%). StarHub remains our top Singapore telco and one of our preferred regional telco picks. This news and a further drop in gearing are key rerating catalysts.
What Happened
StarHub announced that it has priced its S$220m 10-year bond at 3.08%. This is part of its S$1bn multicurrency MTN programme. The closing date is 8 Sep 12. Proceeds will be used to finance capex and for debt refinancing.
What We Think
We think this is a step towards a special dividend or increasing its dividend payout. It reinforces our view that StarHub is ripe for capital management given its multi-year low net debt/EBITDA of 0.5x and strong FCFE. StarHub’s FY12-14 FCFE/share is S$0.22-0.29, based on our estimates and comfortably above its dividend policy of S$0.20/share.
The bond issuance will be useful given the impending spectrum auction, probably in 1H13. The regulator plans to auction off 1800MHz, 2.3GHz, and 2.5GHz spectrum for 4G service, which could cost S$138m if the auction proceeds, based on our estimates. However, telcos could walk away with the spectrum at the yet-to-be-announced reserve price if there is plenty of spectrum to go around.
What You Should Do
Remain invested in StarHub as we think this bond issuance will pave the way for StarHub to either raise its dividend payout or declare a special dividend/undertake a capital repayment. Although StarHub’s existing dividend yield of 5.6%, one of the highest among its regional peers, is already quite attractive, we assume DPS will rise to 22 cts in FY13, implying an even more impressive yield of 6.6%.
StarHub – CIMB
Calling for capital management with bond issuance?
We believe that StarHub’s planned issuance of a S$220m bond is a potential step towards a special dividend or increasing its dividend payout. This reinforces our view that StarHub is ripe for capital management given its low and rapidly-falling gearing level.
The bond issuance will be useful for Starhub given the impending spectrum auction, probably in 1H13. We maintain Outperform, with an unchanged DCF-based target price (WACC 7.9%, LTG 1.4%). StarHub remains our top Singapore telco and one of our preferred regional telco picks. This news and a further drop in gearing are key rerating catalysts.
What Happened
StarHub announced that it has priced its S$220m 10-year bond at 3.08%. This is part of its S$1bn multicurrency MTN programme. The closing date is 8 Sep 12. Proceeds will be used to finance capex and for debt refinancing.
What We Think
We think this is a step towards a special dividend or increasing its dividend payout. It reinforces our view that StarHub is ripe for capital management given its multi-year low net debt/EBITDA of 0.5x and strong FCFE. StarHub’s FY12-14 FCFE/share is S$0.22-0.29, based on our estimates and comfortably above its dividend policy of S$0.20/share.
The bond issuance will be useful given the impending spectrum auction, probably in 1H13. The regulator plans to auction off 1800MHz, 2.3GHz, and 2.5GHz spectrum for 4G service, which could cost S$138m if the auction proceeds, based on our estimates. However, telcos could walk away with the spectrum at the yet-to-be-announced reserve price if there is plenty of spectrum to go around.
What You Should Do
Remain invested in StarHub as we think this bond issuance will pave the way for StarHub to either raise its dividend payout or declare a special dividend/undertake a capital repayment. Although StarHub’s existing dividend yield of 5.6%, one of the highest among its regional peers, is already quite attractive, we assume DPS will rise to 22 cts in FY13, implying an even more impressive yield of 6.6%.