Author: kktan
SMRT – DMG
Downgrade To Sell On Wage Revision
SMRT has announced a progressive revision of its non-executive wage scale, excluding Bus Captains, from 1 March. Despite factoring in payouts via the Wage Credit Scheme, we are lowering our FY13 and FY14 earnings by 4.2% and 11.9% respectively. Downgrade to SELL (from NEUTRAL), with a lower TP of SGD1.43 (from SGD1.55 previously) based on DCF. This implies a FY14 P/E of 19.3x.
Full impact of wage revision partially offset by Wage Credit Scheme. SMRT’s wage revision mainly targets the non-executive staff, excluding Bus Captains. This exercise is estimated to account for c. 63% of SMRT’s 7,350 employees. It is anticipated that almost all of those employees who qualify for the wage revision would see their monthly revised pay move up to no more than SGD4,000, making them eligible for the Wage Credit Scheme, through which the government co-funds 40% of the wage increases from 2013 to 2015. Although we expect this Scheme to help mitigate the full impact of the increased staff cost, we are cutting our FY13/14 earnings by 4.2%/11.9%.
Revision aims at nurturing a better public transport system. SMRT views the wage revision as a step towards creating a more productive, motivated and efficient workforce, which will in turn give rise to a safe and reliable public transport system. This move follows a series of train breakdowns as well as a strike by the company’s bus drivers. Although we agree that a wage revision could incentivize staff and ultimately improve public transport service levels, we believe it would be challenging for SMRT to achieve this while keeping profits tight, especially amidst an environment where transport fares are not keeping pace with cost increases.
Downgrade to SELL. No light yet at the end of the tunnel. SMRT does not appear attractive, trading at a 21.8x FY14 (FYE Mar) P/E vs ComfortDelGro’s 15.8x FY13 P/E. Apart from a higher than expected fare revision following a fare formula review deferred until at least May 2013, we see little potential catalysts for a share price upside given the cost pressure concerns.
February 2013
Results announcement
- 5 Feb 13 : SIAEC (Q313) – EPS 6.08ct (todate 18.54ct)
- 7 Feb 13 : SBSTransit (Q412) – EPS 0.93ct (todate 6.01ct) ; Div 1.65ct (todate 3ct)
- 7 Feb 13 : StarHub (Q412) – EPS 5.12ct (todate 20.93ct) ; Div 5ct (todate 20ct)
- 8 Feb 13 : ComfortDelgro (Q412) – EPS 2.7ct (todate 11.89ct) ; Div 3.5ct (todate 6.4ct)
- 14 Feb 13 (AM) : SingTel (Q313) – EPS 5.19ct (todate 16.57ct)
- 15 Feb 13 : STEng (Q412) – EPS 4.93ct (todate 18.76ct) ; Div 4ct (Final) + 9.8ct (Special) (todate 16.8ct)
- 26 Feb 13 : HLFin (FY12) – EPS 17.6ct ; Div 8ct (todate 12ct)
STI = 3269.95 (+8.83)
|
Stock |
Period |
EPS cts |
DPS cts |
Mkt |
Yield |
PE |
Div Breakdown |
|
HL Fin |
FY12 (Dec) |
17.60 |
12.00 |
$2.730 |
4.396% |
15.51 |
Interim 4ct ; Final 8ct |
|
SingPost |
FY12 (Mar) |
7.407 |
6.25 |
$1.205 |
5.187% |
16.27 |
Q1, Q2, Q3 1.25ct ; Q4 2.5ct |
|
SPH |
FY12 (Aug) |
23 |
24.0 |
$4.180 |
5.742% |
18.17 |
Interim 7ct ; Final 9ct + Special 8ct |
Aviation Services
|
Stock |
Period |
EPS cts |
DPS cts |
Mkt |
Yield |
PE |
Div Breakdown |
|
SATS |
FY12 (Mar) |
15.40 |
26.0 |
$2.940 |
8.844% |
19.09 |
Interim 5ct ; Final 6ct + Special 15ct |
|
SIA Engg |
FY12 (Mar) |
24.56 |
21.0 |
$4.910 |
4.277% |
19.99 |
Interim 6ct ; Final 15ct |
|
ST Engg |
FY12 (Dec) |
18.76 |
16.8 |
$4.250 |
3.953% |
22.65 |
Interim 3ct ; Final 4ct + Special 9.8ct |
Note : SATS Special Div is Observed to be Non-Recurring
Transport
|
Stock |
Period |
EPS cts |
DPS cts |
Mkt |
Yield |
PE |
Div Breakdown |
|
SBSTransit |
FY12 (Dec) |
6.01 |
3.00 |
$1.510 |
1.987% |
25.12 |
Interim 1.35ct ; Final 1.65ct |
|
ComfortDelGro |
FY12 (Dec) |
11.89 |
6.40 |
$1.920 |
3.333% |
16.15 |
Interim 2.9ct ; Final 3.5ct |
|
SMRT |
FY12 (Mar) |
7.9 |
7.45 |
$1.610 |
4.627% |
20.38 |
Interim 1.75ct ; Final 5.7ct |
TELCO
|
Stock |
Period |
EPS cts |
DPS cts |
Mkt |
Yield |
PE |
Div Breakdown |
|
SingTel |
FY12 (Mar) |
25.04 |
15.8 |
$3.440 |
4.593% |
13.74 |
Interim 6.8ct ; Final 9ct |
|
M1 |
FY12 (Dec) |
16.1 |
14.6 |
$2.800 |
5.214% |
17.39 |
Interim 6.6ct ; Final 6.3ct + Special 1.7ct |
|
StarHub |
FY12 (Dec) |
20.93 |
20 |
$4.190 |
4.773% |
20.02 |
Q1 5ct ; Q2 5ct ; Q3 5ct ; Q4 5ct |
Funds / Infrastructure
|
Stock |
Period |
DPS cts |
Mkt |
Yield |
NAV |
Div Breakdown |
|
SPAus |
1H – Sep12 |
A4.1 (Gross) |
$1.500 |
6.936% |
$1.300 |
1H13 A4.1ct ; 2H12 A4.0ct |
|
MIIF |
2H – Dec12 |
5.75 |
$0.570 |
9.649% |
$0.700 |
1H12 2.75ct ; 2H12 2.75ct + 3ct (Special) |
* SPAus DPU in A$. Yield is Calculated Using Latest Exchange Rate (1.2688) fm Yahoo
NOTES :
- Mkt Price is as on 28-Feb-13
- HLFin : 1H12 (Jun) – 4ct ; 2H12 (Dec) – 8ct (Final)
- ST Engg : 1H12 (Jun) – 3ct ; 2H12 (Dec) – 4ct (Final) + 9.8ct (Special)
- ComfortDelgro : Q412 (Dec) – 3.5ct ; Q212 (Jun) – 2.9ct
- StarHub : FY13 Div Guidance – 5ct/Q
- SBSTransit : Q212 (Jun) – 1.35ct ; Q412 (Dec) – 1.65ct
- M1 : 2H12 (Dec) – Final 6.3ct + Special 1.7ct ; 1H12 (Jun) – Interim 6.6ct
- MIIF : 1H12 (Jun) – 2.75ct ; 2H12 (Dec) – 2.75ct (Final) + 3ct (Special) ; Above Yield is Computed without Special Dividend
- SingTel : 1H13 (Sep12) – Interim 6.8ct
- SPAus : 1H13 (Sep12) – A4.1ct = A1.367ct (Franked) + A2.467ct (Interest) + A0.266ct (Capital Returns)
- SATSvcs : Q213 (Sep12) – Interim 5ct
- StarHub : Q312 (sep) – 5ct ; Q212 (Jun) – 5ct ; Q112 (Mar) – 5ct
- SMRT : Q213 (Sep12) – Interim 1.5ct
- SIAEC : Q213 (Sep12) – Interim 7ct
- SingPost : Q213 (Sep12) – 1.25ct ; Q113 (Jun12) – 1.25ct
- SPH : 2H12 (Aug) – Final =9ct + Special = 8ct ; 1H12 (Feb) – Interim = 7ct
- SPAus : 2H12 (Mar12) – A4ct = A1.333ct (Franked) + A2.159ct (Interest) + A0.508ct (Capital Returns) ; FY12 Guidance = A8.2ct ; 3-for-20 @ S$1.25 (A$1)
TELCOs – OCBC
EXPECTING HIGHER CAPEX IN 2013
- 1 near-miss, 2 hits
- Higher capex guidance
- Yield story likely unchanged
M1 below, rest mostly inline
Out of the three telcos, M1’s 4Q12 results were slightly below our forecast while the other two were mostly in line. Nevertheless, we note that M1 not only managed to post a recovery in its EBITDA margin, but also was the highest among the three. As M1 had earlier guided, the recovery was due to the upfront expensing of its smartphone subsidy. M1 also surprised with a special dividend of S$0.017/share on top of its final dividend of S$0.063. StarHub declared a quarterly dividend of S$0.05 as guided.
Review of Singapore mobile operations
Core post-paid mobile subscribers grew by another healthy 2.0% QoQ to 4.3m in Dec quarter, led by SingTel with 2.5%, StarHub 1.7% and M1 1.6%. Monthly ARPUs were also quite stable; and all three telcos expect to see uplifts this year as more users switch over to the new tiered pricing plans with less generous data bundles; this aided by the introduction of more LTE-enabled smartphones.
Most expecting higher capex this year
For 2013, M1 expects to see a moderate earnings growth as it continues to benefit from the upfront expensing of smartphone subsidies; also expects to maintain a dividend payout of at least 80% of underlying profit. For StarHub, it expects single digit revenue growth and an EBITDA margin of 31%; no change to its quarterly S$0.05/share dividend guidance. But both telcos have started to guide for higher capex this year, which they continue to roll-out their 4G networks and also to cater for the growing data usage pattern. Lastly, SingTel has kept its previous guidance, but note that its year-end is in Mar.
Maintain OVERWEIGHT
For now, we maintain our OVERWEIGHT on the sector. But as the telcos have already done quite well YTD, further capital appreciation may be limited, although dividend yields are still relatively attractive. M1 remains our top pick.
TELECOM | OVERWEIGHT
19 Feb 2013
Sector Update
Singapore | Telecom Sector Asia Pacific Equity Research
MICA
STEng – DBSV
More to look forward to
- FY12 net profit of S$576m (+9% y-o-y) in line; final dividend of 13.8Scts (FY12: 12.5Scts)
- Upside to end-FY12 orderbook of S$12.1bn from recent Singapore navy contract
- MRO revenues recovering; potential for upside surprise from pick up in US operations
- Valuations have not peaked; maintain BUY with higher TP of S$4.40
Strong earnings growth in FY12. Results for 4Q12 and FY12 were in line with estimates. STE reported net profit of S$576m for FY12, up 9% y-o-y on the back of 6% growth in revenue to S$6.4bn. Earnings were mainly driven by Aerospace and Electronics segments, but all divisions showed improvement. Results would have been better if not for higher allowances for doubtful debts, impairment of goodwill and higher tax charges. Group PBT margin remained stable at 11%. Aerospace margins improved to 15% despite start-up losses at new projects.
Potential upside to orderbook, earnings. STE finished the year with an orderbook of S$12.1bn, but this could be boosted by another S$1.5-2bn (our estimate) from the recently secured contract to build 8 patrol vessels for the Singapore Navy. We conservatively expect earnings growth of about 6% p.a.in FY13/14F, but there is upside potential from the MRO division, where business has been picking up, especially in the US.
Maintain BUY; room to re-rate further. While the stock is currently trading at 20x FY13 PE, it is still below the +2 S.D. level, unlike some of the other dividend yield names in the market. In terms of yield spreads, we are still not quite close to the previous peaks. With yield compression in vogue, we reckon there is room for further upside. Thus, we maintain our BUY call on STE with a revised TP of S$4.40, premised on higher valuation metrics, as justified above. With healthy earnings growth of about 6% and yield of about 4.5%, we believe the stock still presents one of the more compelling investment cases among the defensive, dividend yield names listed on the SGX.
STEng – Phillip
Naval contract win to drive up valuations
Company Overview
ST Engineering (STE) is an integrated engineering group with exposures to four key business segments: Aerospace, Marine, Electronics and Land Systems. The company is also an anchor customer of Singapore’s defence industry.
- Net income of S$576.2mn (+9.2%y-y).
- Expect order book to hit new record in the next quarter.
- Guidance for higher sales and profit in FY13E.
- Dividend payout remains at 90%.
- Maintain Accumulate with revised TP of S$4.50.
What is the news?
STE reported a strong 9.2% growth in net income on record sales of S$6.4bn in 2012. Revenue was higher across all divisions with profitability remaining little changed from the year earlier. Order book trended lower on a sequential basis to S$12.1bn (1.9X sales). The company maintained its historical payout ratio of 90% and recommended a full year DPS of 16.8cents (FY2011: 15.5cents). Management guided for stronger sales and profits in FY2013. Separately, the company recently announced a major shipbuilding contract for the Singapore Navy.
How do we view this?
The results beat our forecasts largely due to a stronger than expected end to the year. The company’s order book softened sequentially, but we expect it to hit a new record high in the next quarter after addition of the recent
shipbuilding contract for the Singapore Navy. While the contract value was not announced, we estimate it to be worth approximately S$2bn.
Investment Actions?
Despite the strong rally over the past year, we expect the stock of STE to continue trading towards the top end of its historical valuation range in the year ahead. We raised our target price to S$4.50 as we roll over our valuation basis to FY13E. Maintain Accumulate.