Author: kktan
SPH – OSK DMG
Valuations Stretched; Downgrade To Sell
2QFY13 results came in slightly below our expectations with PATMI at SGD72m (-15% y-o-y, -22% q-o-q). A 7.6% y-o-y fall in N&M ad revenue was partially cushioned by a 4.5% y-o-y increase in property rental income. We lower our FY13/14 earnings by 5.8/6.0% on weaker domestic economic outlook, which impact ad revenue. Downgrade to SELL with lower SOTP TP of SGD4.00 (SGD4.30 previously).
- Share price enjoyed a great run up but valuations appear stretched. SPH’s share price ran up some 10% since it announced an exploration of a REIT listing on the SGX. Though we understand there are advantages of a REIT spin off, such as potential cash inflows, we think valuations appear stretched. With an unexciting core publishing segment, and FY13 dividend yields compressing to 5.2%, we are downgrading our call to SELL.
- Feasibility of a REIT listing would depend on how cash is deployed. SPH is still in the early stages of studying a REIT spin off possibility and we think visibility on any positive catalysts are lacking at this point in time. We think a key point that needs to be addressed would be whether SPH will be able to make yield accretive investments with the use of proceeds.
- Ad revenue weak but property segment held the fort. Property segment income continued to enjoy 4.5% y-o-y growth to SGD50.2m due to higher rental rates from Paragon but this was more than offset by a 7.1% y-o-y fall in Newspaper and Magazine segment revenue to SGD224.4m. Following weaker-than-expected 1Q13 Singapore GDP contraction (based on advanced estimates) of 0.6%, we have consequently lowered our FY13 earnings by 5.8% to reflect weaker ad spend going forward.
- Downgrade to SELL, yields looking less attractive. We value the core media segment based on 13.8x FY13 P/E, Paragon (SGD2.43bn) and Clementi Mall (SGD359m) at market value, M1 and Starhub at OSK TP and investments as at Feb 13. SPH has declared an interim dividend of SGD7¢ a share. We think SPH looks less attractive with FY13 yields at 5.2%.
SPH – OSK DMG
Valuations Stretched; Downgrade To Sell
2QFY13 results came in slightly below our expectations with PATMI at SGD72m (-15% y-o-y, -22% q-o-q). A 7.6% y-o-y fall in N&M ad revenue was partially cushioned by a 4.5% y-o-y increase in property rental income. We lower our FY13/14 earnings by 5.8/6.0% on weaker domestic economic outlook, which impact ad revenue. Downgrade to SELL with lower SOTP TP of SGD4.00 (SGD4.30 previously).
- Share price enjoyed a great run up but valuations appear stretched. SPH’s share price ran up some 10% since it announced an exploration of a REIT listing on the SGX. Though we understand there are advantages of a REIT spin off, such as potential cash inflows, we think valuations appear stretched. With an unexciting core publishing segment, and FY13 dividend yields compressing to 5.2%, we are downgrading our call to SELL.
- Feasibility of a REIT listing would depend on how cash is deployed. SPH is still in the early stages of studying a REIT spin off possibility and we think visibility on any positive catalysts are lacking at this point in time. We think a key point that needs to be addressed would be whether SPH will be able to make yield accretive investments with the use of proceeds.
- Ad revenue weak but property segment held the fort. Property segment income continued to enjoy 4.5% y-o-y growth to SGD50.2m due to higher rental rates from Paragon but this was more than offset by a 7.1% y-o-y fall in Newspaper and Magazine segment revenue to SGD224.4m. Following weaker-than-expected 1Q13 Singapore GDP contraction (based on advanced estimates) of 0.6%, we have consequently lowered our FY13 earnings by 5.8% to reflect weaker ad spend going forward.
- Downgrade to SELL, yields looking less attractive. We value the core media segment based on 13.8x FY13 P/E, Paragon (SGD2.43bn) and Clementi Mall (SGD359m) at market value, M1 and Starhub at OSK TP and investments as at Feb 13. SPH has declared an interim dividend of SGD7¢ a share. We think SPH looks less attractive with FY13 yields at 5.2%.
TELCOs – CIMB
Singapore visit takeaways
From our recent visit to the Singapore telcos, we gather that StarHub is currently in talks with FA Premier League (FAPL) but we believe that the rights to the Barclays Premier League (BPL) matches are less attractive given the limited time before the season starts.
We also note that competition in fibre broadband has intensified. We maintain Underweight on the sector as de-rating catalysts are expected from SingTel given regulatory and competitive risks. Our top pick is StarHub.
What Happened
We recently met up with M1 and StarHub. Key takeaways are:
StarHub: It has begun talks with the FAPL for the rights to broadcast the Barclays Premier League (BPL). No decision has been made at this juncture. It also does not plan to hire a new COO as its current CEO will be able to take on both the roles. Competition in fibre broadband is increasing, mainly sparked by smaller players like MyRepublic and ViewQuest. StarHub also noted that the average consumption of mobile data by its subscribers has increased from below 1GB/month to 1-2GB/month.
M1: Its fixed broadband segment is now EBITDA-positive but it guided that it will be lower than the overall group’s margin going forward. It expects mobile ARPUs to rise as customers recontract into tiered data plans. M1 expects its capex to peak in 2013 before declining in 2014, albeit still higher than in 2012.
What We Think
StarHub: We think that it is now less compelling for StarHub to acquire the rights to the BPL given that there is limited time left to garner sponsors and advertisers. On top of that, we believe that SingTel has had a head start in locking in most of the BPL fans as subscribers under mioTV.
M1: We expect mobile ARPUs to rise as data usage increases. SingTel has also said it plans double its charge to S$10.70/GB for users exceeding their data quota which will help SingTel to further monetise data. We also expect the overall subsidy for handsets to fall yoy as there are more mid-end 4G devices available in the market.
What You Should Do
We reiterate our Underweight call on the sector given the lack of re-rating catalysts and heightened regulatory and competitive risks.
ComfortDelgro – OSK DMG
Positive On London Bus Acquisition
ComfortDelGro (CD) announced that it is acquiring part of FirstGroup’s London bus business for GBP57.5m (SGD109m). The purchase price implies an EV/EBITDA of 5.2x while CD currently trades at 6.1x FY13 EV/EBITDA. We are positive on the acquisition, and raise FY13/14 earnings by 2.9%/5.5%. Maintain BUY with higher TP of SGD2.20 (from SGD2.10 previously) based on DCF (WACC:9.0%; TGR: 2.5%).
Acquisition offers good value. We think the acquisition is value accretive to CD given that the purchase was made at 5.2x EV/EBITDA, cheaper than CD’s FY13 EV/EBITDA of 6.1x. Though CD’s UK/Ireland bus business is commanding lower operating margins of 7.8% compared to its Australia bus business’ 19%, management notes that this acquisition was opportunistic given improving bus operations in the UK.
A larger share of UK bus pie. Following this acquisition, CD’s UK bus market share would increase by 7ppt to 19%, sharing a joint second position with Arriva. Go-Ahead currently leads the UK bus market with a 24% market share.
Development of overseas business the way forward. As the domestic land transport market for rail and bus operators in Singapore remain challenging, we favour the growth potential of CD’s overseas businesses which accounts for 46% of operating profit and commands higher operating margins of 13.2% (versus 10% for Singapore). Management is targeting for overseas profit contribution to hit the 50% level. This London bus acquisition follows the Australia bus acquisition of Deanes Transit Group announced in early Aug 2012.
CD still offers value at current price level. At FY13 P/E of 15.5x, CD remains more attractive than SMRT’s 22.0x FY14 P/E (FYE Mar). We like CD for its widespread overseas network which allows it better overseas growth prospects – something we view as a strong advantage given the challenging domestic land transport market.
MIIF – AmFraser
Divesting its crown jewel TBC
Divestment of crown jewel Taiwan Broadband Communications (TBC). Macquarie International Infrastructure Fund (MIIF) has proposed the divestment of its 47.5% stake in TBC to a new SGX‐ST listed business trust Asian Pay Television Trust (APTT). According to MIIF, APPT has obtained a letter of eligibility‐to‐list from SGX and is targeting an initial public offering (IPO) by end May pending shareholders’ approval. Under the proposed divestment, shareholders could elect to receive their proportionate share of the MIIF APPT units or elect to receive their entitlement in cash based on APPT’s IPO price.
Equity listing of TBC more value‐enhancing for Unitholders. MIIF’s decision to pursue an equity listing for TBC is an opportunistic move amid investors’ avid hunting for yields. Over the past 18 months, MIIF has received unsolicited trade offers for TBC, which were below the minimum valuation of S$469.5mil. The minimum valuation for TBC is set at 95% of its book value and has taken into consideration all transaction costs in relation to the IPO listing.
Shareholders who wish to invest in APTT could remain vested in MIIF and receive their proportional share of APTT units. TBC’s yield is estimated to be around 9.3%, which is enticing considering the average 5‐6% yields among S‐REITs and business trusts at present. A fair value yield of 8% will imply potential upside of 16% respectively for APTT’s Unitholders, assuming that the IPO is priced at book.
Downgrade to HOLD on limited capital upside. Alternatively, for investors who do not wish to take a stake in APTT, we believe the recent appreciation in MIIF’s share price could present an opportunity for Unitholders to sell into strength and switch into other high‐yield plays with better prospects for growth. Our top pick under our coverage is Hutchison Port Holdings Trust (BUY, FV: $0.955) that boasts a forward yield of 7.2‐8.1%. Moreover, we note that there remain uncertainties surrounding the divestiture plans for the remaining assets (remaining divestments could take between 12‐18 months).
We lower our fair value to S$0.590 after taking into account MIIF’s distributions in Q113 and the expenses incurred in relation to its proposed divestiture of TBC. This represents a potential capital upside of only 1.4% over its current share price.
According to MIIF, it will maintain its policy of distributing its free cash flow to its Unitholders semi‐annually. We project its FY14 forward yield at 9.2% following its divestment of TBC, and this translates into a total return of 10.6%.