Author: kktan
RafflesMed – OCBC
Downgrading to HOLD
● 2Q12 PATMI of S$12.4m (+7% YoY)
● 1 S cent/share interim dividend
● Upside likely limited after recent share price surge
2Q12 revenue in line but PATMI misses slightly
Raffles Medical Group (RMG) reported its 2Q12 results with revenue within our expectations but PATMI was slightly below due to higher-than-expected operating expenses. Revenue rose 14.9% YoY and 5.5% QoQ to S$76.9m. PATMI was up 6.8% YoY and 6.9% QoQ to S$12.4m. Topline growth was driven by both its Hospital Services and Healthcare Services divisions, which increased 19.1% and 9.1% YoY, respectively. For 1H12, revenue jumped 14.0% to S$149.9m, forming 48.0% of our full-year estimates; while PATMI increased 8.7% to S$24.0m, or 42.8% of our FY12 forecast. 2H is typically a seasonally stronger half for RMG, and we expect this trend to be maintained in FY12. An interim dividend of 1 S cent/share was declared (payable on 31 Aug 2012), similar to 1H11 and is in line with our expectations.
Cost pressures higher-than-expected
Staff costs grew 19.1% YoY on the back of salary increments and a 14% increase in headcount in anticipation of its expanded operations. The former was in line with industry-wide wage adjustments. The group also incurred higher operating lease expenses (+23.6% YoY) and inventories and consumables costs (+23.1% YoY) which rose faster than revenue growth. As a result, RMG’s net margin eased from 17.4% in 2Q11 to 16.1% in 2Q12.
Growth still expected, but downgrade to HOLD
RMG’s share price has accelerated 16.7% since the start of July (+21.7% YTD), far outpacing that of the broader market (+3.6%). We believe this has been buoyed largely by positive sentiment from the impending dual-listing of IHH Healthcare Berhad; although the group’s defensive earnings quality has also found flavor amongst investors given the still-volatile macroeconomic landscape. We maintain our revenue projections but adjust our PATMI estimates downwards by 4.2% for FY12 and 3.0% for FY13 on lower margin assumptions.
This correspondingly decreases our fair value estimate from S$2.73 to S$2.63 (24x blended FY12/13F EPS). While we expect RMG’s earnings growth to remain fairly resilient despite cost pressures, we see limited upside from current price level. Downgrade RMG from Buy to HOLD.
RafflesMed – AmFraser
RMG’S Q2 NET GAIN UP 6.8% TO $12.4M
Raffles Medical Group posted a 6.8 per cent year‐on‐year increase in net profit to $12.42 million for the second quarter to June 30 as revenue rose 14.9 per cent to $76.9 million.
Second‐quarter results were boosted by stronger contributions from both its hospital and healthcare services business segments. Earnings per share worked out to 2.31 cents in Q2FY12, up from 2.20 cents in Q2FY11.
The second quarter saw staff costs rising 19.1 per cent to $37.8 million as the group bumped up headcount by 13‐14 per cent to meet expansion needs and also adjusted wages in line with the industry.
For the six months ended June 30, net profit came in 8.7 per cent higher at $24.04 million while revenue climbed 14 per cent to $149.85 million. The group declared an interim dividend of one cent, payable on Aug 31.
Growth at Raffles Hospital is being driven by a number of factors, including a widening foreign pa
TELECOs – DBSV
Three keys – Android, EPL and Fiber
• Singaporeans are no longer obsessed with iPhone, till the launch of iPhone 5 at least. StarHub’s 2Q12F earnings may beat market expectations on the back of it.
• English Premier League bidding may haunt again, StarHub’s annual S$20m savings could disappear.
• HOLD StarHub for 5.9% yield as we raise TP to S$3.50 expecting 21 Scts DPS versus 20 Scts earlier.
• HOLD SingTel for 5% yield. Key concerns are Bharti’s contribution and startup cost for mobile advertising in Singapore.
Increasing popularity of Android phones is good news for the sector. M1 revealed that 70% of its new post-paid customers in 2Q12 had opted for Android phones. Telcos provide lower handset subsidy on Androids versus iPhones due to the cheaper retail price of Androids. This is likely to benefits SingTel and StarHub. In mid-August, we expect StarHub to beat market expectations by 12 % and report 2Q12 earnings of S$95m (23% y-o-y and 8% q-o-q). We like to highlight that the upcoming launch of iPhone5 (rumored to be in September end) could reverse the trend just like how the iPhone 4S did last year.
Two possible scenarios for English Premier League (EPL) rights in September 2012. Neither of the players has an incentive to bid higher for exclusive rights, as consumers can access the content through cross-carriage arrangements anyway. There are two possibilities depending on what is acceptable to the Premier League. (i) Both players place a common joint-bid; (ii) Each player bids on a non-exclusive basis so that cross-carriage does not apply. In either case, each player has to incur some cost of owning the content rights. We estimate that StarHub has benefitted at least S$20m annually due to the absence of cost for EPL rights and these benefits may disappear going forward. We don’t see much impact on SingTel due to the high cost-base of EPL rights.
Higher adoption of fiber broadband. The regulator has increased the weekly porting limit for fiber connections by 30% to 3100 from August 2012 onwards. 200 installations out of the quota will be for commercial buildings, expediting fiber adoption in the corporate space. This will reduce waiting time for fiber connections and benefit retail service providers (RSPs). RSPs have a chance to steal small and medium enterprise (SME) customers from SingTel now.
StarHub – DBSV
Market is pricing 21 Scts DPS
• StarHub might report 2Q12F earnings of S$95m, up 23% y-o-y and 12% ahead of market expectations.
• Annual savings of S$20m due to the absence of EPL rights might disappear going forward.
• FY12F/13F raised 4% each, TP raised to S$3.50 as we switch to DDM with expectations of 21 Scts annual DPS. Maintain HOLD.
2Q12F earnings likely to be ahead of market expectations. In mid-August, we expect StarHub to report 2Q12F earnings of S$95m (23% y-o-y & 8% q-o-q). This should be 12% ahead of consensus expectations of S$85m on the back of the increasing popularity of Android phones which need lower subsidies than iPhones. 2Q12F includes the Euro Cup matches, however, and we expect the Euro Cup to be neutral to slightly negative. We have conservatively raised our FY12F/13F earnings by 4% each as the potential launch of iPhone5 could hurt earnings in the 4Q12F.
Two possible scenarios for English Premier League rights in September 2012. Neither one of the players has an incentive to bid higher for exclusive rights due to cross-carriage regulations. There are two possibilities here depending on what is acceptable to the Premier League. (i) Both players place a common joint-bid; (ii) Each player bids on a non-exclusive basis in order to avoid cross-carriage. In either case, each player has to incur some cost of owning the content rights. We estimate that StarHub has benefitted S$20m annually due to the absence of EPL costs and these benefits could disappear going forward.
Maintain HOLD with higher TP of S$3.50. We switch from DCF to DDM assuming 8% cost of equity, 2% long-term growth rate and 21 Scts DPS. With net debt to EBITDA of 0.5x, lowest amongst three telcos, StarHub could possibly raise regular dividends slightly. Management has ruled out special dividends though, given the EPL bidding ahead and the spectrum auction in 2013.
SATS – DMG
More passengers; stable cargo volume
Unit services handled grew QoQ. Unit services handled in 1QFY13 was 6.7% more than 4QFY12. This was largely due to an increase in services provided to larger aircraft. This was likely driven by an increase in travel to further destinations such as Europe during the June holiday season, where the route is usually undertaken by larger aircrafts. The increase in unit services handled is also contributed by a greater number of flights handled (+1.5% QoQ, +7.2% YoY) during the quarter.
Cargo volume stable despite weak demand. Cargo volume declined 5.2% YoY, due to economic slowdown in the US and Europe. Compared with the previous quarter, cargo volumes grew slightly by 2.1%. We think demand in the cargo segment is likely to remain weak, on the back of a weak global economy.
Passenger traffic still healthy. Passengers handled increased 3.6% QoQ (9.0% YoY), to cross the 10.0m mark for the first time, likely due to the holiday season and more passengers taking short and frequent trips on LCCs. With healthy passenger traffic at Changi, we estimate that SATS’ Airport Services division (ground handling services and cargo) would record flat YoY revenue growth, while growth in its Food Solutions segment would be helped by improvement in TFK.
Maintain NEUTRAL. SATS had announced a special dividend of 15 S¢/share for 4QFY12 (total dividend for FY12: 26 S¢/share), which is payable on 15 Aug 12. We like SATS’ steady dividends, supported by a strong balance sheet (net cash: 28.3 S¢/share). Currently, SATS is trading cum-dividend, at 16.7x P/E (average 14.5x P/E). The ICT has commenced operations, but positive contribution is only likely in FY14. Maintain NEUTRAL, with DCF-based TP of S$2.57.