Author: kktan
SingPost – DBSV
S$179m spent on acquisitions so far
• 3Q13 underlying profit of S$39.8 (+2% y-o-y, 22% q-o-q) and interim DPS of 1.25 Scts were in line
• Acquired two more companies for S$97m, taking amount spent on acquisitions to S$179m over the last two years
• Limited disclosure on acquisitions so far. The stock is not cheap at 17x PE. HOLD with revised TP of S$1.14.
Highlights
Divergence between revenue and operating profits. Top line grew 14% y-o-y versus a decline of 3% in operating profits. E-commerce activities for all the segments and new contribution from Novation Solutions (acquired in May 2012) were key drivers of top-line growth. Corporate overheads seem to be the main culprit as operating profits were up across all the segments but group operating profit was still down.
Two more acquisitions in logistics sector recently. In Dec 2012, Singpost paid S$37m for a 100% stake in General Storage Pte Ltd which operates a self-storage business in Singapore, and also carries net debt of S$15m on its books. In Jan 2012, Singpost agreed to pay S$60m for a 62.5% stake in Famous Holdings Pte Ltd which is a freight consolidator and forwarder with offices in six countries. Both the acquisitions aim to consolidate Singpost’s position in the logistics space in the region.
Limited disclosure on acquisitions. Singpost has not disclosed earnings or PER multiples, making it difficult for us to track the progress. The acquisitions are funded by S$350m of perpetual bonds issued in Mar 2012, accounted as equity in our model.
Recommendation
Not cheap at 17x PER, maintain HOLD at revised TP of S$1.14. We adjust long-term growth rate to 0.5% (as evident from 9M12) from 0% earlier while cost of equity remains at 6% in our DDM
SingPost – DBSV
S$179m spent on acquisitions so far
• 3Q13 underlying profit of S$39.8 (+2% y-o-y, 22% q-o-q) and interim DPS of 1.25 Scts were in line
• Acquired two more companies for S$97m, taking amount spent on acquisitions to S$179m over the last two years
• Limited disclosure on acquisitions so far. The stock is not cheap at 17x PE. HOLD with revised TP of S$1.14.
Highlights
Divergence between revenue and operating profits. Top line grew 14% y-o-y versus a decline of 3% in operating profits. E-commerce activities for all the segments and new contribution from Novation Solutions (acquired in May 2012) were key drivers of top-line growth. Corporate overheads seem to be the main culprit as operating profits were up across all the segments but group operating profit was still down.
Two more acquisitions in logistics sector recently. In Dec 2012, Singpost paid S$37m for a 100% stake in General Storage Pte Ltd which operates a self-storage business in Singapore, and also carries net debt of S$15m on its books. In Jan 2012, Singpost agreed to pay S$60m for a 62.5% stake in Famous Holdings Pte Ltd which is a freight consolidator and forwarder with offices in six countries. Both the acquisitions aim to consolidate Singpost’s position in the logistics space in the region.
Limited disclosure on acquisitions. Singpost has not disclosed earnings or PER multiples, making it difficult for us to track the progress. The acquisitions are funded by S$350m of perpetual bonds issued in Mar 2012, accounted as equity in our model.
Recommendation
Not cheap at 17x PER, maintain HOLD at revised TP of S$1.14. We adjust long-term growth rate to 0.5% (as evident from 9M12) from 0% earlier while cost of equity remains at 6% in our DDM
SingPost – Kim Eng
Looking For Better Yield Elsewhere
Results slightly better than expected. SingPost 9MFY3/13 results were better than expected. 9MFY3/13 revenue increased by 14.5% yoy to SGD476.3m and net profit excluding one-off items was slightly up by 0.5% to SGD109.1m. However due to rich valuation, we maintain our HOLD rating but slightly upgrade our target price to SGD1.21.
Top line grew strongly. We appreciate Singapore Post’s transformation effort as we saw positive revenue growth momentum in recent quarters. In 9M FY3/13, SingPost recognized revenue growth in all business segments despite the continuous decline in letter volumes. The growth was mainly driven by consolidation of new acquired subsidiary Novation Solutions as well as e-commerce volumes.
Cost pressure prevented bottom growth. Despite respectable top line growth, net profit hardly made any growth (up by only 0.5% yoy) in 9MFY3/13 compared with a year ago. We expect further improvement in revenue following recently announced M&As. However inflationary cost pressure, gradual shift to lower-margin Logistics business and the cost for transformation will continue to weigh on margins and prevent significant net profit growth.
Still early to judge recent M&As. SingPost announced a few M&A deals recently including SGD60m for 62.5% stake in Famous Holdings, a sea freight consolidator and freight forwarder as well as SGD37m for 100% in General Storage, a self-storage provider in Singapore. We understand that those new subsidiaries are currently profitable and acquisition costs were also reasonable. But since those new acquisitions are bigger than previous M&As, in our view much more effort must be put in to fully merge the new subsidiaries with existing business to create real synergy.
HOLD for rich valuation. SingPost’s current dividends yield of 5.2% is not very attractive relative to its historical average of 6.0%. On PER basis, current 17.2x PER is also approaching historical high. We slightly upgrade our earnings forecast to reflect better-than-expected results and recent acquisitions but maintain our HOLD rating.
SATS – CIMB
Ready for take-off
We turn positive on SATS, prompted by a breakthrough in Changi Airport’s volumes intertwined with a recovery in profit margins as food inflation peters out. Benefitting from booming air travel in Singapore, SATS offers stable earnings growth and yields of over 4%.
We upgrade it from Neutral to Outperform, with catalysts expected from its margin recovery and continued air-traffic strength. We lift FY14-15 EPS by 1% for higher volumes and raise our target price, now on 16.8x CY14 P/E, 1 SD above its 8-year mean (from 14.4x, 8-year mean). We believe our higher valuation can be justified by breakthrough volumes and better margins.
Volumes at a new high
A breakthrough in the number of flights handled by Changi Airport prompts us to revisit SATS, the airport’s dominant ground handler. In Nov, Changi Airport handled an average of 920 flights per day, crossing the 900 mark for the first time ever. We were previously wary of a margin contraction and cautious on volume growth, as flights handled appeared to have levelled out at around 880 per day. The recent breakthrough is evidence of success in the airport’s measures to improve air traffic.
Margins have bottomed out
SATS’s profit margins have also bottomed out, we believe. Easing food inflation leaves room for further margin expansion. 2Q13 profit margins were the best in six quarters as food inflation tapered off. We see a further easing in food inflation and productivity gains. SATS’s core net profit margin has the potential to improve 0.4% pt to 9.9% in FY13, in our estimation. Margins could grow further in FY14 if food inflation is kept at bay.
Upgrade to Outperform
We upgraded SATS from Underperform to Neutral last quarter on evidence of a margin recovery. We now upgrade it to Outperform, seeing stronger-than-expected air traffic through Singapore as an additional catalyst.
M1 – Phillip
Positive on Data monetizing
Company Overview
M1 is the 3rd largest Telecommunications company in Singapore. The introduction of NGNBN in Singapore lowered entry barriers to the Fixed Line business, which would allow M1 to venture into the corporate and retail broadband market.
- 0.8% y-y increase in Net Income, Service revenue healthy with 2.9% y-y growth
- Positive on S$5.50 uplift in ARPU from data monetizing among 4G tiered data plan customers
- Higher FY2013 capex guidance of S$130m – S$150m
FY2012 final & special dividend of 8.0 cents proposed
- Maintain Neutral, with unchanged TP of S$2.41.
What is the news?
M1 reported a marginal 0.8% y-y increase in Net profits. Service revenue was positive, with y-y increases in revenue contribution from Mobile telecommunication services and Fixed services. International call services were however down on lower roaming and International calling card revenue. Expenses remain well managed. Net income was below expectations due to under provision of tax in prior year, and lower than expected margins on handsets.
How do we view this?
The biggest positive from this set of results was management’s guidance of an ARPU uplift of S$5.50 from the data monetizing of 4G tiered data plans. We expect to see continued data monetizing, although at a tapered rate due to higher proportion of signups from more cost conscious customers moving forward. Management also guided higher capex in FY2013, at between S$130m and S$150m. This is due to higher expenditure required to meet the high QOS standards set by the government, and the enhancement of the network. M1 also proposed a final and special dividend of 8.0 cents, bringing the total FY2012 dividend to 14.6 cents, which is 0.1 cent higher than FY2011’s total dividend.
Investment Actions?
We adjust our figures to reflect 4Q12 earnings. We continue to expect M1 to deliver stable net profits moving forward. M1’s dividend yield of 5.3% continues to remains attractive at current prices. We maintain our “Neutral” rating, with an unchanged TP of S$2.41.