Author: kktan
STEng – Lim & Tan
- ST Engineering’s first quarter net profits came at S$134 million, posting a paltry loss of 0.3% y-o-y, which represents 22% of consensus full year forecast.
- The firm’s aerospace sector contributed positively to its bottom-line, with profitability growing 26% y-o-y due to encouraging sales mix, favourable foreign exchange impact and higher profits from associates.
- On the other hand, 1Q ’13 earnings contributions from its Electronics, and Marine sectors were only comparable to that of 1Q ’13, whereas its Land Systems sector profitability was lower (-9% y-o-y), due to unfavourable product mix and allowances for inventory obsolescence and doubtful debts. Absence of contribution from an associate with profit from Singapore Airshow 2012 also hurt performance.
- Nevertheless, its order book grew to S$13.0 billion, up from S$12.1 billion recorded in 4Q ’12.
- Management guided to achieve higher revenue and profits before tax for FY 2013, compared to FY 2012, and deliver S$3.6 billion of its order book within 2013.
MIIF – AmFraser
Maintain HOLD on limited capital upside
Divestment resolution approved. MIIF has obtained its shareholder approval for the proposed divestment of its 47.5% stake in Taiwan Broadband Communications (TBC) to Asian Pay Television Trust (APTT) on 30 April. Unitholders will be entitled to MIIF APTT units in proportion to the number of issued shares held as at the Record date of 9 May. The ex‐entitlement date falls on 7 May and APTT units are expected to commence trading on 29 May.
APTT has an indicative yield of 7.29‐8%. According to its preliminary prospectus, APTT’s initial public offering comprises 1.44bil units. The indicative price range was set between S$0.92 and S$1, representing a projected FY13 yield of 7.29‐8%.
Factoring in our assumption of a fair value yield of 7.5% for APTT, we estimate that MIIF would receive S$527.4mil from its divestment of TBC to APTT, or 45.85 cents per share. This represents a gain of 2.85 cents per share over TBC’s current book value of 43 cents per share.
Maintain HOLD. We raise our fair value to S$0.66 after factoring in our estimated divestment proceeds for MIIF. We have also adjusted our valuation model to assume a divestment timeframe of 3 years for the remaining assets Hua Nan Expressway and Changshu Xinghua Port. Our TP of S$0.66 represents a capital upside of only 7.2% over its last closing of S$0.615. Hence, we maintain our HOLD call on MIIF given the limited scope for capital appreciation.
Unitholders who wish to invest in APTT should remain vested in MIIF. We estimate that MIIF’s Unitholders would be entitled to around 472 shares in APTT for every 1000 shares they hold in MIIF. Assuming a theoretical ex-entitlement price of 21.4 cents, this translates into an overall cost of $401 for 472 shares in APTT. This is relatively lower than the cost of subscribing to the IPO of APTT directly or purchasing APTT’s shares on the open market, which is estimated to be around $459 on a yield of 7.5%. Moreover, we note that a direct purchase of APTT shares would incur additional transaction costs.
MIIF – AmFraser
Maintain HOLD on limited capital upside
Divestment resolution approved. MIIF has obtained its shareholder approval for the proposed divestment of its 47.5% stake in Taiwan Broadband Communications (TBC) to Asian Pay Television Trust (APTT) on 30 April. Unitholders will be entitled to MIIF APTT units in proportion to the number of issued shares held as at the Record date of 9 May. The ex‐entitlement date falls on 7 May and APTT units are expected to commence trading on 29 May.
APTT has an indicative yield of 7.29‐8%. According to its preliminary prospectus, APTT’s initial public offering comprises 1.44bil units. The indicative price range was set between S$0.92 and S$1, representing a projected FY13 yield of 7.29‐8%.
Factoring in our assumption of a fair value yield of 7.5% for APTT, we estimate that MIIF would receive S$527.4mil from its divestment of TBC to APTT, or 45.85 cents per share. This represents a gain of 2.85 cents per share over TBC’s current book value of 43 cents per share.
Maintain HOLD. We raise our fair value to S$0.66 after factoring in our estimated divestment proceeds for MIIF. We have also adjusted our valuation model to assume a divestment timeframe of 3 years for the remaining assets Hua Nan Expressway and Changshu Xinghua Port. Our TP of S$0.66 represents a capital upside of only 7.2% over its last closing of S$0.615. Hence, we maintain our HOLD call on MIIF given the limited scope for capital appreciation.
Unitholders who wish to invest in APTT should remain vested in MIIF. We estimate that MIIF’s Unitholders would be entitled to around 472 shares in APTT for every 1000 shares they hold in MIIF. Assuming a theoretical ex-entitlement price of 21.4 cents, this translates into an overall cost of $401 for 472 shares in APTT. This is relatively lower than the cost of subscribing to the IPO of APTT directly or purchasing APTT’s shares on the open market, which is estimated to be around $459 on a yield of 7.5%. Moreover, we note that a direct purchase of APTT shares would incur additional transaction costs.
SMRT – OSK DMG
Dividend Slashed As Prospects Dim
SMRT reported 4QFY13 results which came in below the market’s already lowered expectations. This pulled down FY13 earnings, which slumped 31% to SGD83m. Management continues to foresee challenges that will impact profitability in the short term. The payout ratio has been cut to 45% of earnings. We lower FY14 earnings by 16%. Maintain SELL with lower DCF TP of SGD1.25 (from SGD1.37).
4QFY13 earnings in the red due to cost pressures, impairment. SMRT reported 4QFY13 PATMI losses of SGD12m (versus SGD14m profit in 4QFY12) which came in below our and consensus’ expectations. The weak results were due to higher staff and repair and maintenance costs, as well as a SGD17m impairment of interest in Shenzhen Zona, partially offset by a SGD22m goodwill impairment done in 4QFY12.
Cut in dividend payout could remain till conditions improve. SMRT had declared FY13 dividends of SGD2.5¢ a share, which amounts to a payout ratio of 45% of FY13 PATMI. Historically, SMRT had payout ratios ranging between 70-100% of PATMI. Though management has not committed to a 45% payout ratio for the future, we believe the payout ratio will only be raised when profitability improves.
Unexciting ridership growth. Rail average daily ridership grew 3% y-o-y in 4QFY13, a slowdown from the 9.3-11.8% run rate for the same periods in FY10-12. Average daily ridership for CCL was 360k which we believe remains under the breakeven level.
Maintain SELL, expect further cuts from the street. SMRT’s valuation is far from attractive, trading at 25.6x FY14 (FYE Mar) P/E vs ComfortDelGro’s 16.1x FY13 P/E. Apart from a higher than expected fare revision following a fare formula review, we see little potential catalysts for a turnaround given the cost pressures that SMRT is faced with.
SMRT – Phillip
Not a stock to own
Company Overview
SMRT is a multi-modal land transport operator with exposures to various modes of operations, including rail, bus & taxi services. A significant part of its profits are generated from its ancillary businesses, such as advertising & rental of commercial spaces.
- FY13 profits of S$83.3mn (-30.5%y-y).
- Elevated CAPEX guidance of S$500mn.
- Full year DPS cut to 2.50cents.
- Outlook statement remains negative.
- Maintain Sell with revised target price of S$0.93.
What is the news?
SMRT reported losses of S$12mn for 4QFY13. The losses in the quarter were driven by an S$17.3mn impairment charge on Shenzhen Zona, significantly higher staff cost (+28.5%) and repair & maintenance expenses (+41.6%). With significantly lower profits for the year, SMRT cut its final DPS to 1.50cents, representing a full year payout of 2.50cents (45.6% of FY13 PATMI). Outlook statement remains negative as management highlighted continued increase in operating costs and expects profitability to be impacted in FY2014.
How do we view this?
With the company’s earlier profit warning, the quarterly losses were well expected by the market. However, the magnitude of the dividend cut surprised us (and probably consensus), reflecting a dividend yield of merely 1.7% at the current price. With operating costs trending north, we expect SMRT to report structurally lower profits in our forecast years.
Investment Actions?
Despite a sharp decline in recent months, we believe that the stock of SMRT had not bottomed out. We maintain our Sell recommendation as the unsustainable business model, structurally lower earnings, rising leverage and poor dividend yield support gives investors little reason to own this stock. Unless there is a radical change in the business model, we expect a multi-year de-rating of this stock. With poor cashflow visibility, we switch to our blended valuation method to a simple P/E model pegged to 15X FY14E.