Author: kktan
SingTel – Lim & Tan
- Results for Q3 ended Dec ’12 tell the same story as in recent quarters – underlying profit (excluding exceptionals) fell 2.3% to $874 mln.
- Singapore was resilient while Optus Australia was marginally better with underlying profit 2.7% higher even as revenue fell 6%.
- Improved contributions from Telkomsel (Indonesia) and AIS (Thailand) were largely offset by India’s Airtel.
- Free cash flow rose 5% to $666 mln.
- Assuming unchanged final dividend of 9 cents as has been the case at the interim stage of 6.8 cents, yield is 4.4%.
- We are downgrading stock to HOLD following the 9.4% price gain in the year to date (on talk of entry into the Myanmar market), outperforming STI ‘s 4.2% rise.
ComfortDelgro – DBSV
Another record year
- 4Q within expectations; FY12 a record year
- Final DPS of 3.5 Scts, equating to payout of 54% for FY12
- Balance sheet remains strong to pursue inorganic growth
- Trading at lower valuations compared with SMRT despite geographical exposure, stable growth. BUY, TP: S$2.05
Highlights
4Q within expectations. 4Q12 net profit increased by 2% y-o-y to S$57.6m, ending FY12 at a record profit of S$248.9m (+6% y-o-y), within our forecasts (S$248m). 4Q revenue rose by 2%, driven by all business segments, except bus station and automotive engineering in China. EBIT margins dipped marginally to 10.6% (4Q11: 10.8%) as operating expenses rose by 2% mainly from higher staff costs (+6% to S$284.3m) and contract services (+12% to S$121.4m), offset partially by lower materials and consumables (-11% to S$79.8m) and fuel and electricity costs (-13% to S$64.3m).
Hedging energy/fuel as in 2012. Management indicated that they have hedged 60% and 40% of its fuel requirements in Singapore and the UK, respectively. This should continue to provide visibility and stability to its earnings in 2013, as in 2012.
DTL incurred a loss of S$6.1m. Staff recruitment is expected to continue towards the operation of Downtown MRT Stage 1 (DTL1) in 2013 with about 400 staff, up from 210 currently. While we expect losses to continue as operations ramp up, this should not pose a huge impact to the group given its larger size and geographical/ business diversification, in our view.
Our View
Dividend per share of 3.5 Scts. Final dividend of 3.5 Scts was proposed (FY12: 3.3 Scts). Coupled with the interim dividend of 2.9 Scts, this equates to a total payout of 6.4 Scts (54% payout ratio). Capex requirements are projected to taper off in FY14F, and we remain hopeful that dividend payout could increase.
Preferred land transport play, strong balance sheet. CD remains as our preferred land transport play given its stable growth profile, geographical diversification and strong balance sheet to pursue inorganic growth. Net debt to equity stands at 0.3%, down from 2.2% in FY11.
Recommendation
Maintain BUY, TP at S$2.05. Our TP is based on DCF (WACC: 10%, t=1%) and 15x average FY13F/14F PE. This implies 16.3x /15.8x PE on FY13F/14F, slightly above its historical average of 15x, but significantly below SMRT’s 22x FYE Mar14F PE.
SingTel – CIMB
Bharti’s the static on the line
9MFY13 core net profit met our forecast but missed that of consensus by 5%. Strength at Optus, Telkomsel, AIS and Globe was offset by disappointment at Bharti. SingTel Singapore was in line with expectations. SingTel maintained its FY13 guidance.
We maintain our forecast, our Underperform recommendation and SOP-based target price of S$3.23. Likely derating catalysts are the poor results, regulatory risks in India and competition flaring up again in Australia.
Singapore
SingTel Singapore’s operational performance was in line with expectations. 3Q revenue rose 1.5% qoq and 1.3% yoy, driven by mobile earnings, which rose 4.1% qoq and 3.2% yoy. Revenue, EBITDA and core net profit were in line with forecasts. Core net profit rose 15% qoq due to lower tax expense on the back of lower deferred tax credit relating to inter-company interest expense.
Optus
Revenue was in line but EBITDA was 6% ahead of expectations, largely as a result of higher cost savingsand lower mobile net adds in the period in our view. Its operational performance was not impressive. Mobile performance was weak with poor net adds and higher churn while wholesale continues to be a revenue driver. On-net fixed broadband and telephony subscribers declined for the first time.
Mobile service revenue fell 3.8% yoy, marginally lower than our forecast as it was affected by lower termination rates and reduced roaming revenue. Mobile net adds of 22k were weaker than expected. Postpaid net adds came in at 58k but this was offset by higher churn in prepaid, which lost 36k subscribers.
Bharti disappointed
Except for Bharti, SingTel’s associates turned in results that were above our forecasts. Bharti’s core net profit contribution fell 60% qoq and 75% yoy on the back of higher D&A and tax.
Starhub – DBSV
Assured 5% yield with some growth
• 4Q12 earnings were 22% ahead of consensus due to lower than expected handset subsidies
• FY13F/14F earnings raised 8%/6% on lower subsidies and growth in digital voice home services revenue
• Maintain BUY with higher TP of S$4.30
Handset subsidies on a declining trend. 4Q12 earnings of S$87.9m (-5% y-o-y, -9% q-o-q) were 22% ahead of consensus estimates. Handset costs increased only 30% y-oy despite handset sales rising 70% reflecting higher mix of Android and Windows smartphones. Unfortunately, StarHub did not raise dividend guidance for FY13F despite net debt to EBITDA of only 0.5x versus 0.8x for M1 and 1.1x for SingTel, citing spectrum auction and future 4G capex.
Multiple growth drivers for FY13F. Besides lower subsidy burden, key drivers are (i) market share gains in the corporate data space where SingTel enjoys ~80% share (ii) full year impact of new revenue from digital home service as StarHub has started charging S$10.90 per month (prev. free) from Sep 2012 onwards (iii) significant rise in "other income" as StarHub (official OpCo) receives adoption grant from more people migrating to 100 Mbps broadband. These drivers should more than offset challenges in the pay TV segment in our view.
COO Mr. Tan Tong Hai to be new CEO by end Feb 2013. Mr. Tan had successfully turned around Singapore Computer Systems and Pacific Internet in his previous roles. Growing corporate data and defending pay TV business are the key challenges for him. We switched from DDM to DCF (WACC 6.5%, terminal growth 0%) valuation to capture FCF growth to derive a new TP of S$4.30.
ComfortDelgro – OCBC
COMFORTING RESULTS BUT RICH VALUATIONS
- FY12 within expectations
- Domestic fortunes turning
- But upside already mostly priced in
FY12 closes on a positive note
ComfortDelGro’s (CD) FY12 results came in within our expectations with revenue increasing 3.9% YoY to S$3.5b while operating profit improved 3.3% YoY to S$412.3m as the group managed to keep a lid on operating expenses during the period. With PATMI rising 5.6% YoY to S$248.9m, management declared a final dividend of 3.5 S cents (FY11: 3.3 S cents), taking the total dividend declared for the year to 6.4 S cents (FY11: 6.0 S cents). As a percentage of PATMI, the payout ratio rose marginally by 0.7ppt to 54%.
Look forward to fare increases
A long overdue fare increase will likely materialise by the middle of 2Q13, and this will help to alleviate pressures on operating margins for CD’s domestic segments. Coupled with the continued growth in bus and rail ridership – albeit at a slower pace – we expect the two segments to post more encouraging results in the coming quarters.
Has time to adapt to changes in overseas landscape
The loss of the two Australian bus routes will only take effect in Sep 2013 so the impact to CD will be more significant from FY14. In the absence of tender dates for its two remaining services, management has some lead time to adjust its approach although it has signalled its willingness to accept lower margins. That said, the relatively new tender process also opens up opportunities for the group to expand its footprint into other regions.
Allocation to defensive sectors has benefited CD
YTD, CD’s share price has appreciated by ~7%, benefiting largely from a combination of improving prospects and a greater emphasis on defensive qualities. Although our fair value increases to S$1.95 (from S$1.90) after we adjust our PATMI payout ratio to 52% (from 50%), much of the upside has already been priced in. Downgrade to HOLD on valuation grounds.