Author: kktan
ComfortDelgro – Kim Eng
Delivering the Goods
Positive 3QFY12 results delivered. ComfortDelGro (CDG) delivered a positive set of 3QFY12 results, recording a 5.4% YoY increase (+SGD3.7m) in PATMI to SGD72.8m. These results were largely in line with expectations given that 9MFY12 PATMI comprised 78-79% of ours and consensus’ full-year estimates, and noting that 4Q has been a historically weaker quarter. We maintain our BUY call on CDG as our preference in the Singapore Land Transport sector, Target Price unchanged at SGD1.94.
Taxis once again lead profit growth. CDG’s 3QFY12 operating profit growth of 2.8% (+SGD3.2m) YoY was boosted by its taxi segment which showed an improvement of 8% (+SGD3.0m). In particular, the Singapore taxi segment drove the profit growth, as it was a beneficiary of higher rental income from replacement taxis and a larger fleet, as well as a higher volume of cashless transactions.
Buses and Rail bring up the rear. CDG’s bus business recorded a marginal operating profit growth of 1% YoY (+SGD0.6m), primarily helped by its UK and Australia businesses growing 6% and 2% respectively. The rail segment was the poorest performer, showing a 63% drop YoY (-SGD4.5) in operating profit, caused by start-up staff costs of the Downtown Line and higher repair and maintenance costs.
Outlook of revenue growth. Management’s revenue outlook remained upbeat, as it expects revenue to grow or at least be maintained in all segments except its bus business in China (divestment of Shenyang CDG) and its taxi business in UK (UK austerity measures).
Maintain BUY, reiterate preference over SMRT. We continue to prefer CDG in the Singapore land transport sector for its diversified business model, which not only provides additional avenues for growth, but also shields it from country-specific challenges (eg: Singapore). We leave our forecasts largely intact, and reiterate our BUY call and Target Price of SGD1.94, which is pegged to 16x FY13 PER.
SingTel – CIMB
Lower guidance on 1HFY13 miss
1H13 core net profit missed CIMB and consensus estimates by 3% and 10% respectively as Bharti disappointed. SingTel maintains its overall guidance but has lowered Optus’sFY13 revenue, citing competition and reduced mobile-termination rates.
DPS was 6.8cts (62% payout of 1HFY13), unchanged yoy. 3QFY13 is likely to be weaker due to higher iPhone-related subsidies. We maintain our Underperform and SOP-based target price pending its conference call later this morning. Likely de-rating catalysts are earnings disappointments and adverse regulatory developments in India.
Amobee losses dragged down Singapore
Singapore met expectations, with EBITDA up 2.1% yoy. EBITDA would have risen 4.7% if start-up losses from Amobee were excluded. SingTel continued to gain mobile market share up, 0.7% pt qoq. It also continued to dominate fibre broadband, capturing 58% of net adds.
Optus a little below forecast, lowers guidance
Optus’s revenue was a little below our forecast, with 3Q being key to FY13’s performance. Its 2QFY13 4.2% yoy fall in revenue mainly resulted from a 5.1% decline in mobile revenue. Incoming mobile revenue slid 13.1% yoy, due to a well-known fall in mobile-termination rates. However, outgoing mobile revenue also fell 1.7% from a 10% decline in postpaid ARPU, led by dilution from mobile broadband. Mobile margins continued to climb as SACs fell and, we think, with better network utilisation from mobile data. Revenue from the two other businesses declined with a 7.5% yoy fall in EBITDA for the consumer division. With mobile dominating, Optus’s 2Q13 EBITDA was flat yoy. However, it has lowered its revenue outlook from low-single-digit growth to a low-single-digit decline though it maintained its guidance of stable EBITDA.
Bharti disappointed
Most of SingTel’s associates beat our expectations except for Bharti, which came in 29% below as D&A and interest expense surprised.
SingTel – CIMB
Lower guidance on 1HFY13 miss
1H13 core net profit missed CIMB and consensus estimates by 3% and 10% respectively as Bharti disappointed. SingTel maintains its overall guidance but has lowered Optus’sFY13 revenue, citing competition and reduced mobile-termination rates.
DPS was 6.8cts (62% payout of 1HFY13), unchanged yoy. 3QFY13 is likely to be weaker due to higher iPhone-related subsidies. We maintain our Underperform and SOP-based target price pending its conference call later this morning. Likely de-rating catalysts are earnings disappointments and adverse regulatory developments in India.
Amobee losses dragged down Singapore
Singapore met expectations, with EBITDA up 2.1% yoy. EBITDA would have risen 4.7% if start-up losses from Amobee were excluded. SingTel continued to gain mobile market share up, 0.7% pt qoq. It also continued to dominate fibre broadband, capturing 58% of net adds.
Optus a little below forecast, lowers guidance
Optus’s revenue was a little below our forecast, with 3Q being key to FY13’s performance. Its 2QFY13 4.2% yoy fall in revenue mainly resulted from a 5.1% decline in mobile revenue. Incoming mobile revenue slid 13.1% yoy, due to a well-known fall in mobile-termination rates. However, outgoing mobile revenue also fell 1.7% from a 10% decline in postpaid ARPU, led by dilution from mobile broadband. Mobile margins continued to climb as SACs fell and, we think, with better network utilisation from mobile data. Revenue from the two other businesses declined with a 7.5% yoy fall in EBITDA for the consumer division. With mobile dominating, Optus’s 2Q13 EBITDA was flat yoy. However, it has lowered its revenue outlook from low-single-digit growth to a low-single-digit decline though it maintained its guidance of stable EBITDA.
Bharti disappointed
Most of SingTel’s associates beat our expectations except for Bharti, which came in 29% below as D&A and interest expense surprised.
Sarin – Kim Eng
Focus on long-term structural growth
Softer 3Q12 than we expected. Although we were expecting weak 3Q12 numbers, the decline was greater than what we anticipated. Revenue came in at USD11.7m (-26% YoY, -35% QoQ) with corresponding net profit of USD2.5m (-41% YoY, -62% QoQ). 9M12 net profit made up 64% of previous FY12F forecasts. We have advocated looking beyond FY12 numbers previously so this set of weak results is not too much of a concern. Maintain Buy with TP reduced to SGD1.57.
What happened this quarter? Sales in 3Q12 were affected by weak demand from Indian manufacturers as they put off capex spending. This was mainly due to two key reasons: (1) High rough diamond prices, coupled with short-term weakness in polished diamond prices erode manufacturers’ margin and (2) Indian manufacturers face liquidity and credit line issues. Sales of GalaxyTM were also affected, as only 5 were sold this quarter (compared to 13-14 in the preceding 2 quarters). Sarin also warned that it may miss its target of 100 installed GalaxyTM machines by year end given that it has only 88 as at 3Q12.
Signs of easing. There are however positive signs emerging from (1) DeBeers’ 10% cut on rough diamond prices, and (2) holiday buying of polished diamonds, which should aid in the recovery of the Indian manufacturing sector as liquidity issues dissipate.
Structural growth story intact. We believe that inherent demand for GalaxyTM has not abated but is temporarily subdued by customers’ financial positions. We see potential for resumption of sales momentum towards end 4Q12. Progress of its polished diamond products could see some breakthrough in end 4Q12 if it manages to establish commercial agreements with major industry opinion leaders for its Sarin-Light product.
Maintain Buy. We cut FY12F net profit forecast by 16% on weaker 3Q12 numbers and trim FY13-14F figures by about 5-7%. Growing recurring revenue base (25% of total revenue for 9M12) from GalaxyTM has improved quality of earnings and helped reduce volatility. We remain positive as we believe that the adoption cycle of Galaxy is still in its early stage. Maintain Buy, TP reduced to SGD1.57 pegged at 13x
FY13F PER.
STEng – DBSV
On track to strong growth year
- 3Q12 net profit of S$146m (+9% y-o-y) ahead of our estimates; margin improvements across all segments
- Revised up FY12/13F earnings by 3-4%
- YTD order wins of S$3.5bn already past FY11 levels; underpins FY13/14 earnings visibility
- Maintain BUY with higher TP of S$3.80
Highlights
Delivering strong results again. 3Q12 net profit of S$146m (up 9% y-o-y and 2% q-o-q) came in above our estimates of about S$140m, driven by strong margins across all business segments. Revenue was up 11% y-o-y to S$1.54bn, driven by the Aerospace, Electronics and Land Systems sectors. 9M12 net profit of S$424m accounts for more than 75% of our existing full-year estimates for FY12.
Margin improvement across all sectors. Group PBT margin improved to 12% in 3Q12 from 11.5% in 1Q12. Aerospace core PBT margin remained steady at 15% (17% including write-back of provisions), while Electronics and Marine PBT margins of 12% and 13% came in at the higher end of the historical range. Adjusting for S$14m of provisions, Land Systems PBT margin was also strong at 8.7%.
Our View
Strong order wins momentum. STE closed the quarter with a S$12.5bn orderbook. YTD, STE has announced close to S$3.5bn worth of new contracts, which is already ahead of the S$3.2bn worth of contracts announced in FY11. In 3Q12, the Aerospace division led with S$690m worth of new orders, continuing the momentum from previous quarters. In what could potentially be a medium to long term positive development, STE, along with consortium partner SAIC, has recently been chosen by United States Marine Corps as 1 of 4 contenders for the ~US$3bn Marine Personnel Carrier programme. This potentially places STE’s defence capabilities at par with more established players, and could lead to more international recognition in future.
Recommendation
Maintain BUY. With this quarter in the bag, STE’s growth trajectory seems to be firmly on track, driven by healthy orderwin momentum and improvement in margins. We revise upwards our FY12/13F earnings estimates by about 2.6%/ 3.9% to account for the above. We now expect robust 9% earnings growth in FY12, and 6% growth in FY13/14. Given visible earnings growth, strong balance sheet and healthy dividend yield of 5%, we maintain our BUY call. Our TP, which is based on the blended valuation methodology, is revised up to S$3.80 as we roll over to FY13 numbers.