Author: kktan
SingTel – Kim Eng
India 3G roaming – To ban or not to ban?
Ban or no ban: who knows? India’s proposed ban on 3G roaming alliances between domestic telcos is only the latest uncertainty in a telecom market already famous for regulatory earthquakes. However, the impact is minimal for a couple of reasons. One, 3G subscribers form just 2-3% of the total number of mobile phone users in India, hence the impact on earnings is relatively small, and two, SingTel and Axiata are insulated by their minority stakes in their Indian associates. We maintain SELLs on SingTel (TP SGD3.03) and Idea (TP Rs68) and BUYs on Axiata (TP MYR7.30) and Bharti Airtel (TP Rs400). We like Bharti for its improving FCF and earnings profile, and Axiata for potential surprises in earnings and dividends.
3G roaming pact ban notices served. Bharti Airtel, along with Idea and Vodafone, said this week that they has received a notice from DoT, the Indian telecom regulator, to stop offering 3G roaming in areas (or “circles”) that it does not have 3G spectrum rights within 60 days. In 2010, Bharti won 3G licences in 13 of the total 22 telecom circles for USD2.3b. In 2011, it entered into 3G roaming agreements with Vodafone and Idea (part of Axiata), giving it a 3G presence in the whole of India. DoT claims that by doing this, the government is not receiving its just dues, and wants it stopped.
Telcos are appealing. Naturally, the telcos are appealing against the decision. They claim that there was no specific provision made against roaming pacts when the 3G licences were sold in 2010.
Not a big deal, as 3G subscribers in India are a rare breed. In total, 3G subscribers only account for 2-3% of the total number of mobile subscribers in the country, which hit 672m active users as at Aug 2012. The biggest 3G mobile telco players in India by subscriber size are Reliance Communications (RCOM), Bharti Airtel, Idea Cellular and Vodafone. We estimate Bharti has 5.1m “active” 3G subscribers, followed by Reliance with 4m and Idea with 3.1m. Vodafone has the smallest subscriber base.
Old news, but this is getting old. A possible ban on such 3G roaming pacts is not new, as there has already been numerous warnings since Dec 2011. Given that 2G roaming is allowed, Ganesh Ram our telco analyst in India believes the regulator will eventually also allow the 3G pacts to continue with some modifications. Nevertheless, this creates further uncertainty in a market fraught with regulatory stress lines, most recently being the cancellation of 122 2G licences earlier in 2012.
Minimal impact on Bharti and Idea, as well as their parent companies. If the 3G ban is implemented, Ganesh estimates the earnings impact on Bharti to be negligible. For Idea, the impact will be larger at Rs600m or Rs0.18/share, 8% of his FYMar13 forecast. Ganesh has a BUY on Bharti (TP Rs400) and a SELL on Idea (TP Rs68). As SingTel owns only 15.9% of Bharti Airtel directly and Axiata owns a mere 19.7% of Idea, the impact on SingTel (SELL, TP SGD3.03) and Axiata (BUY, TP MYR7.30) are also negligible.
RafflesMed – CIMB
Blessing wearing its disguise
Market intelligence suggests that RFMD may no longer be the medical service provider to the Singapore Prison from Dec 12.This could actually benefit its profitability. Yes, the contract size appears huge but the economics is a lot more than meets the eye.
We believe RFMD intends to rationalize its manpower and other resources to focus on chasing higher-margin healthcare businesses. Our EPS and target price, at 22x CY13 P/E(mid-cycle valuations), are unchanged. Maintain Outperform with catalysts expected from higher in-patient billings.
What Happened
There have been murmurings that RFMD will no longer be the medical service provider to the Singapore Prison come Dec 12, when its present contract expires. The estimated value of the new contract from the Ministry of Home Affairs is roughly S$300m, for 5+3 years, starting 2013.
What We Think
We do not think this is such bad news. In fact, we would applaud any such development. From a revenue-profit perspective, we think there is not much operating leverage from its previous public contract. Actual contribution to group revenue is roughly 4%, while net contribution is less than 2.5%.We believe new branches opened in recent years have more than replaced this source of revenue. Also, from a cost perspective, the manpower and resources spent do not favour the economics now unlike the past. With tighter restriction of the employment of foreign labour and new initiatives for expansion (new specialist centre, new wing and various new branches), management would be better off focusing its resources on its current private healthcare business, in our opinion.
What You Should Do
Stay invested. With readjustments in its inpatient billings, we see ample room for RFMD to catch up with rates, albeit gradually initially (5-10% in 4Q12). This provides scope for the company to close its pricing gap with its competitors. RFMD is still a laggard stock in this sector; it has a strong balance sheet among peers in the region. ROEs have also been strong. Maintain Outperform.
STEng – OCBC
DEFENSIVE PLAY WITH ROOM TO CLIMB
- Mid-cycle multiple
- Order book may surpass S$13b
- Increasing earnings visibility
Share price can climb further
A safe haven in turbulent times, STE has outperformed the STI significantly since the beginning of the year, rising 29.0% versus the 15.6% increase by the index. The stock reached its 52-week high of S$3.55 last Friday. The counter is trading at a historical P/E multiple of 20.1x and should still have room to climb (about half a standard deviation above 10-year average). STE’s earnings are fairly stable given its four main diversified businesses, which help to reduce its exposure to sector-specific risks. With an attractive FY12F dividend yield of ~4.8%, STE should continue to perform in today’s uncertain but liquidity-rich global economic environment.
ST Marine wins S$179m worth of contracts
It has recently been announced that ST Marine has secured shipbuilding and repair contracts worth ~S$179m. These wins include a contract to build two additional Offshore Support Vessels (OSVs) for Hornbeck Offshore Services, LLC, as well as a series of repair and upgrading projects. With STE’s order book standing at S$12.9b as of end-1H12, we think that it may be greater than S$13b by the end of 3Q12 and expect continued order book growth.
Looking further into the future
We think it is worthwhile noting that STE’s order book clocked at the end of each year has on average grown faster than the following year’s annual revenue. The order book grew 16% p.a. between end-2005 and end-2010 from S$5.38b to S$11.5b while annual revenues grew 6% p.a. between FY06 and FY11. This trend probably suggests that the average tenure of order book contracts has been increasing. The fact that the order book has been growing faster than revenue implies increasing earnings visibility into the future.
Raise fair value to S$3.81
Rolling forward our valuation to blended 2H12/1H13 EPS and increasing our P/E multiple from 20.0x to 20.5x, we raise our fair value from S$3.50 to S$3.81 and maintain a BUY.
SingPost – OCBC
NOT JUST A “DIVIDEND” STOCK
- Steady climb since Jan
- Stock to hold in current environment
- Focus on management’s use of cash
Continues its upward march
The steady climb of Singapore Post’s (SingPost) stock has continued since the start of the year when we upgraded the stock to BUY. Cautiously improving market sentiment and the flood of liquidity searching for safe havens with respectable yields has supported performance, along with greater expectations of further growth opportunities in SingPost after the issuance of S$350m perpetual capital securities in Feb this year.
Total returns since 2010 attractive for a “dividend” stock
As we noted in our initiation report in Jan 2009, spectacular gains are unlikely to be enjoyed by investors in the stock. This is evident by the STI’s significant outperformance against SingPost in 2009 when global equities rebounded from beaten-down valuations in Mar 2009. However, we note that SingPost’s performance in 2010, 2011 and 2012 YTD has been commendable – it outperformed the STI in 2010, slightly lagged the STI in 2011 and is now ahead of the market so far this year (Exhibit 1). This has allowed investors to ride on the upturn in the last few years while collecting dividends (Exhibit 2). Looking at 2012, this year is likely to be a good one for SingPost’s investors too.
Upside still available; maintain BUY
We like SingPost for its stable operating cash flows and consistent dividends. At the same time, the group has launched new initiatives over the years and diversified into other business areas as well. However, the next leg of growth is heavily dependent on management’s astute use of the group’s cash pile (S$668.6m as of Jun 2012). With changing market dynamics (lower risk free rate and market return), we update our valuation assumptions (lower cost of equity: 6.49%, terminal growth unchanged: 1.5%). Based on our dividend discount model, our fair value estimate rises from S$1.14 to S$1.20. Maintain BUY.
September 2012
STI = 3060.34 (+0.91)
|
Stock |
Period |
EPS cts |
DPS cts |
Mkt |
Yield |
PE |
Div Breakdown |
|
HL Fin |
FY11 (Dec) |
22.65 |
12.00 |
$2.440 |
4.918% |
10.77 |
Interim 4ct ; Final 8ct |
|
SingPost |
FY12 (Mar) |
7.407 |
6.25 |
$1.095 |
5.708% |
14.78 |
Q1, Q2, Q3 1.25ct ; Q4 2.5ct |
|
SPH |
FY11 (Aug) |
24 |
24.0 |
$4.070 |
5.897% |
16.96 |
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 |
$2.680 |
9.701% |
17.40 |
Interim 5ct ; Final 6ct + Special 15ct |
|
SIA Engg |
FY12 (Mar) |
24.56 |
21.0 |
$4.160 |
5.048% |
16.94 |
Interim 6ct ; Final 15ct |
|
ST Engg |
FY11 (Dec) |
17.28 |
15.5 |
$3.540 |
4.379% |
20.49 |
Interim 3ct ; Final 4ct + Special 8.5ct |
Note : SATS Special Div is Observed to be Non-Recurring
Transport
|
Stock |
Period |
EPS cts |
DPS cts |
Mkt |
Yield |
PE |
Div Breakdown |
|
SBSTransit |
FY11 (Dec) |
11.89 |
5.90 |
$1.475 |
4.000% |
12.41 |
Interim 3.1ct ; Final 2.8ct |
|
ComfortDelGro |
FY11 (Dec) |
11.27 |
6.00 |
$1.715 |
3.499% |
15.22 |
Interim 2.7ct ; Final 3.3ct |
|
SMRT |
FY12 (Mar) |
7.9 |
7.45 |
$1.675 |
4.448% |
21.20 |
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 |
$3.200 |
4.938% |
12.78 |
Interim 6.8ct ; Final 9ct |
|
M1 |
FY11 (Dec) |
18.1 |
14.5 |
$2.750 |
5.273% |
15.19 |
Interim 6.6ct ; Final 7.9ct |
|
StarHub |
FY11 (Dec) |
18.40 |
20 |
$3.720 |
5.376% |
20.22 |
Q1 5ct ; Q2 5ct ; Q3 5ct ; Q4 5ct |
Funds / Infrastructure
|
Stock |
Period |
DPS cts |
Mkt |
Yield |
NAV |
Div Breakdown |
|
SPAus |
2H – Mar12 |
A4.0 (Gross) |
$1.340 |
7.638% |
A$0.88 |
2H12 A4.0ct ; 1H12 A4.0ct |
|
MIIF |
1H – Jun12 |
2.75 |
$0.535 |
10.280% |
$0.720 |
1H11 2.75ct ; 2H11 2.75ct |
* SPAus DPU in A$. Yield is Calculated Using Latest Exchange Rate (1.2794) fm Yahoo
NOTES :
- Mkt Price is as on 28-Sep-12
- ST Engg : 1H12 (Jun) – 3ct
- ComfortDelgro : Q212 (Jun) – 2.9ct
- SBSTransit : Q212 (Jun) – 1.35ct
- StarHub : Q212 (Jun) – 5ct ; Q112 (Mar) – 5ct
- MIIF : 1H12 (Jun) – 2.75ct ; 2H11 (Dec) – 2.75ct ; Guidance for 2H12 (Dec) = 2.75ct but FY13 will be Impacted by HNE (Revenue Reduced by 20% – 25% due to Max Toll Cap)
- 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)
- SATSvcs : Q412 (Mar12) – Final 6ct + Special 15ct ; Q212 (Sep11) – Interim 5ct
- SingTel : 2H12 (Mar12) – Final 9ct ; 1H12 (Sep11) – Interim 6.8ct ; Includes Exceptional Net Tax Credit S$270M
- SIAEC : Q412 (Mar12) – Final 15ct ; Q212 (Sep11) – Interim 6ct
- SMRT : Q412 (Mar12) – Final 5.7ct ; Q212 (Sep11) – Interim 1.75ct
- SingPost : Q412 (Mar12) – 2.5ct ; Q312 (Dec11) – 1.25ct ; Q212 (Sep11) – 1.25ct ; Q112 (Jun11) – 1.25ct
- SPH : 1H12 (Feb) – 7ct
- StarHub : FY12 Div Guidance – 5ct/Q
- M1 : 2H11 (Dec) – Final 7.9ct ; 1H11 (Jun) – Interim 6.6ct