Author: kktan
SIAEC – DBSV
Another steady quarter
- 2QFYMar13 net profit on track with our estimates
- Outlook for MRO demand remains fairly stable
- Higher interim DPS of 7Scts declared
- Maintain BUY for resilient earnings and >5% yield, TP is unchanged at S$4.40
Highlights
Headline net profit affected by forex losses. 2QFY13 net profit of S$67.1m came in line with our expectations, and 1HFY13 net profit accounts for more than 48% of our full year forecast. Net profit is down 6% y-o-y, but this is largely due to a couple of noncore items: i) forex loss of S$3.5m in 2Q13 compared to a forex gain of S$7.1m in 2Q12; and ii) S$3.1m tax writeback in 2Q12. Without the impact of these items, net profit would have been up about 15% y-o-y, on the back of a 4% growth in revenue to S$284m.
Core margins held up. Operating margins held largely steady on a sequential basis, at about 11.1%, which would have been higher at 12.2% if not for the forex losses. Contribution from JV/ associates was down about 4% y-o-y to S$39m, which is somewhat disappointing, but largely due to depreciation in the US$.
Our View
Steady outlook. Management continues to expect sustained demand for its core businesses in the near term, despite the ongoing challenges to the health of the airline industry. SIE should benefit from the growth in traffic in the resilient Asia-Pacific region. In 2Q13, the company won a S$166m MRO contract from Cebu Air, which further expands its fleet management business to cover 211 aircraft.
Recommendation
Dividend expectations intact, maintain BUY. SIE declared a higher interim DPS of 7Scts (compared to 6Scts interim DPS in 1HFY12) to achieve a better balance between interim and final dividends. Balance sheet continues to be robust and SIE closed the quarter with S$432m in net cash, higher compared to S$389m net cash at this point last year. While we lower our FY13/14F earnings estimates by about 1% each to account for forex losses, we believe SIE can continue to sustain total DPS of about 22Scts per year, which translates to a healthy yield of 5.3% at current prices, in addition to about 5% earnings growth. Hence, we retain our BUY call and TP of S$4.40.
SingPost – DBSV
Look at better yield alternatives
• 2Q13 underlying profit of S$32.7m (-0.3% y-o-y, -10% q-o-q) and interim DPS of 1.25 Scts were in line
• Overseas business contribution rose to 18% in 2Q13 versus 15% in 1Q13 and 13% in 2Q12, driven by acquisitions where viability has not been proven yet
• HOLD as ~5.4% yield is comparable to the yields offered by Singapore telcos who also offer superior growth
Highlights
Costs continue to outpace revenue growth. Operating expenses grew 13% y-o-y outpacing 9% rise in revenues. This was due to inflationary cost pressures and investments in capabilities and resources to expand overseas revenue. We highlight that most of the top line growth can be attributed to acquisitions worth over S$75m done over the last two years. More acquisitions cannot be ruled out. In March 2012, SingPost had issued S$350m of perpetual bonds at 4.25% coupon. This could be in anticipation of acquisition plans and the expiry of S$300m worth of bonds in April 2013. These perpetual bonds are accounted for as equity in our model.
Our View
6.25 Scts DPS is safe in our view. Dividend payout ratio translates to ~90% while future acquisitions can be funded by S$350m of perpetual bonds. However, we don’t think Singpost will hike its payout ratio till it emerges out of its acquisition mode.
The big questions is how viable are these acquisitions? The good part is that Singpost has not put all its eggs in one basket and has bought stakes in about eight small companies in various geographies. However, one key issue, in our view, is that Singpost does not have a controlling stake in some of these companies and the mix may be too widespread. This may leave Singpost at the mercy of local managements of these companies.
Recommendation
HOLD for 5.4% yield. Overall, we think that acquisitions will start to contribute positively to earnings in another 12 months or so. But that could be offset by decline in the domestic mail business. The stock is not cheap at ~17x PE and ~5.4% yield is not too attractive either unless the company can demonstrate some growth potential.
SingPost – DBSV
Look at better yield alternatives
• 2Q13 underlying profit of S$32.7m (-0.3% y-o-y, -10% q-o-q) and interim DPS of 1.25 Scts were in line
• Overseas business contribution rose to 18% in 2Q13 versus 15% in 1Q13 and 13% in 2Q12, driven by acquisitions where viability has not been proven yet
• HOLD as ~5.4% yield is comparable to the yields offered by Singapore telcos who also offer superior growth
Highlights
Costs continue to outpace revenue growth. Operating expenses grew 13% y-o-y outpacing 9% rise in revenues. This was due to inflationary cost pressures and investments in capabilities and resources to expand overseas revenue. We highlight that most of the top line growth can be attributed to acquisitions worth over S$75m done over the last two years. More acquisitions cannot be ruled out. In March 2012, SingPost had issued S$350m of perpetual bonds at 4.25% coupon. This could be in anticipation of acquisition plans and the expiry of S$300m worth of bonds in April 2013. These perpetual bonds are accounted for as equity in our model.
Our View
6.25 Scts DPS is safe in our view. Dividend payout ratio translates to ~90% while future acquisitions can be funded by S$350m of perpetual bonds. However, we don’t think Singpost will hike its payout ratio till it emerges out of its acquisition mode.
The big questions is how viable are these acquisitions? The good part is that Singpost has not put all its eggs in one basket and has bought stakes in about eight small companies in various geographies. However, one key issue, in our view, is that Singpost does not have a controlling stake in some of these companies and the mix may be too widespread. This may leave Singpost at the mercy of local managements of these companies.
Recommendation
HOLD for 5.4% yield. Overall, we think that acquisitions will start to contribute positively to earnings in another 12 months or so. But that could be offset by decline in the domestic mail business. The stock is not cheap at ~17x PE and ~5.4% yield is not too attractive either unless the company can demonstrate some growth potential.
SingPost – Kim Eng
Wait For A Better Entry Point
Decent results as expected. Singapore Post announced its 2QFY3/13 results yesterday morning. The results were in line with consensus and our estimates. 1HFY3/13 revenue increased by 7.8% yoy to SGD305m, representing 50.6% of our full-year forecast and net profit excluding one-off items was slightly down by 0.6% to SGD69m. We maintain our HOLD rating and target price of SGD1.10 unchanged as we think the upside is very limited after recent strong share price performance.
Transformation only improves the top line. We appreciate Singapore Post’s transformation effort as we saw positive revenue growth momentum in recent quarters. In the first half of FY3/13, SingPost recognized revenue growth in all business segments (Mail sector up 8.0% yoy; Logistics sector up 7.8% yoy and Retail sector up 8.7% yoy) despite the continuous decline in letter volumes. The growth was mainly driven by consolidation of new acquired subsidiary Novation Solutions as well as the revenue growth in Quantium Solutions and Speedpost.
Still too early to see significant bottom line improvement. Despite respectable top line growth, net profit failed to make any growth (down by 0.6% yoy) in 1HFY3/13 compared with a year ago. In our view, we are not likely to see significant bottom line growth in short to medium term because of inflationary cost pressure and gradual shift to lower margin Logistics business.
Property assets divestment? SingPost’s post offices island-wide are precious assets to shareholders. Although the management is open to listening to any offer, we don’t think it will sell their property assets given SingPost’s big net cash position unless the price is too good to say no. However we will appreciate such divestment practice to unlock the hidden value to shareholders.
Wait for a better entry point. SingPost is more of a yield play. However its current dividends yield of 5.4% is no longer attractive relative to its historical average of 6.0%. We recommend that investors take profit and wait for a better entry point.
SIAEC – OCBC
1HFY13 RESULTS IN LINE
- 1HFY13 EPS is 49% of our FY13 estimate
- S$3.1m write-back of tax provision
- Stable outlook in near term
1HFY13 financials in line with expectations
SIA Engineering Co Ltd’s (SIAEC) 1HFY13 financial results were generally in line with our expectations. Basic EPS for 1HFY13 was 12.47 S cents, 49% of our FY13F estimate of 25.6 S cents. Revenue climbed by 6.4% YoY to S$585m, attributable mainly to revenue from materials, fleet management program and line maintenance. Operating margin declined 1.4ppt from 1HFY12 to 11.1% in 1HFY13 because of higher material cost, exchange loss, and increase in subcontract and staff costs. 1HFY13 recorded an exchange loss of S$3.7m versus an exchange gain of S$8.6m a year ago.
Increase in contribution from associates and JVs
Share of profits from associated and joint venture companies increased 1.4% YoY to S$78.8m, accounting for 51% of SIAEC’s pretax profits. 1HFY13 PATMI declined 1.5% YoY to S$137.2m chiefly because profit for the period a year ago included a S$3.1m write-back of tax provision. To achieve a better balance between the interim and final dividends, SIAEC has declared an interim dividend of 7 S cents, an increase of 1 S cents per share over last year.
Sustained demand in near term
Management expects that that demand for the company’s core businesses will be sustained in the near term. SIAEC acknowledges that the operating environment poses challenges as the global economy continues to affect the aviation industry. Management will continue to be vigilant about cost control and productivity improvements.
Maintain HOLD
Rolling our valuation forward, we use 3QFY13-2QFY14 basic EPS of 26.2 S cents and a P/E multiple of 15.8x (half a standard deviation higher than the 4-year average of 14.6x). We increase our fair value estimate from S$4.04 to S$4.14 and maintain our HOLD rating on SIAEC.