Author: kktan
SATS – DMG
Stable aviation business
With the disposal of its UK business in 3QFY12, SATS recorded a marginal decline in 4QFY12 PATMI (1.2% YoY) to S$50.1m. Excluding the UK business, SATS managed to achieve a 10.0% YoY growth in 4QFY12 EBIT, even as revenue rose 7.8% YoY. Its Food Solutions business (particularly the aviation-related segment) would benefit from the improving tourism and air travel in the region, helped by a still-healthy regional economy. This could be somewhat offset by expected weakness in the cargo segment, mainly due to the ongoing economic slowdown in Europe and the US. SATS had announced a special dividend of 15 S¢/share for 4QFY12. Including the interim and final dividends (5 S¢ and 6 S¢ respectively), total dividends for the year would amount to 26 S¢/share. As we roll-forward our earnings estimates, our DCF-based TP is revised to S$2.57. Maintain NEUTRAL.
Expect stability to continue, with some growth. Revenue from SATS’ aviation business (excluding TFK) was rather stable over the past few quarters, registering flat QoQ growth. This was even as the global economy was going through much uncertainty during that period. Demand in the cargo segment is expected to remain weak over the next two quarters. With the growing popularity of LCCs and improving regional tourism, we are estimating flat growth in SATS’ Airport Services division (which includes ground handling services and cargo). Growth in its Food Solutions business, which includes the stable non-aviation related business, is likely to be helped by improvements at TFK.
Maintain NEUTRAL. Given the global economic uncertainty, we are estimating FY13 earnings to grow 8.1% to S$184.7m. The ICT is expected to be operational in the next month, but positive contribution is only likely in FY14. We continue to like SATS for its stability and strong balance sheet (net cash of 28.3 S¢/share). However, at S$2.60, SATS is trading at 15.6x forward P/E, compared to its historical average of 14.5x.
STEng – CIMB
Promising new convert
ST Engineering will be the first to develop a Passenger-to-Freighter conversion programme for the Airbus 330 aircraft with its recent collaboration. This will strengthen its position in the conversion segment, following its success with the Boeing 757 and 767 aircraft.
Maintain Outperform and target price (blended valuations). At 16x CY13 P/E, the stock is close to its -1 standard deviation of five-year mean. We see catalysts from a stronger-than-expected pick up in MRO contracts.
What Happened
ST Aerospace (ST Aero) has signed agreements with Airbus, EADS and Elbe Flugzeugwerke to collaborate on the A330 Passenger-to-Freighter (P2F) conversion programme. ST Aero will subscribe for new shares in EADS EFW (representing 35% of the enlarged capital)for Euro110.5m(S$186.6m). First re-delivery of the converted P2F is set for 2016. The conversions will be mainly done at EADS EFW’s facility in Dresden, Germany, but some work will be carried out at ST Aero’s facilities.
What We Think
We believe this venture widens ST Aero’s offerings following its success with Boeing’s 757-200, 757-300 and MD-11 P2F.Todate, ST Aero has completed 53 of the 87 units of B757-200 conversions for Fedex (order worth S$470m)and 63 units of MD-11 for Boeing. Its P2F order backlog includes the remaining 34 units from Fedex, 10 units of B767-300,and 15 new B757-200conversionssecured in 1Q12.
The latest collaboration also allows ST Aerospace to utilise EADS EFW’s facility in Germany (eight wide-body hangars) for MRO jobs. This enables STE to re-enter the European market after the closure of its Bournemouth facility in UK in 2006.
According to industry reports, Qatar Airways has expressed interest in gradually converting15-20 of its A330s into freighters. We believe such P2F contracts will materialise after the development phase (by 2014).
What You Should Do
Stay invested. We believe the company’s earnings growth and strong contracts momentum (S$1.8bn YTD) has not been priced in.
SPAusNet – BT
SP AusNet raises A$342m in offer
Strong demand from institutions; retail tranche to raise another A$92m
SP AusNet, a member of Singapore Power Group, raised about A$342 million (S$432 million) from the institutional component of its 3-for-20 accelerated non-renounceable pro-rata entitlement offer of its stapled securities.
It is set to raise a further A$92 million through the fully underwritten retail component of the offer at the same institutional price of A$1 (S$1.25) per new stapled security.
About 96 per cent of entitlements offered to eligible institutional shareholders were taken up. But the institutional entitlement offer ended fully subscribed because of significant demand from both new and existing institutional investors for excess allocations.
"This result demonstrates the confidence that both offshore and domestic institutional investors have in SP AusNet, given our proven track record in delivering security-holder returns," said Nino Ficca, SP AusNet's managing director.
M1 – Kim Eng
Mastering the Art of Prepaid
Prepay it forward. M1’s new prepaid MasterCard offering looks attractive enough to help it regrow its prepaid mobile segment, which has seen negative net-adds for the past two quarters. We maintain our BUY call on M1 and target price of SGD2.85, based on implied yield of 5% on FY12F DPS of SGD0.145.
Pioneers new prepaid MasterCard. The M1 Prepaid MasterCard is a multi-purpose debit card that allows users to top up M1’s prepaid cards, pay public transit fares, ERP and car park charges and make contactless purchases. We think it is an interesting product that should help M1 increase customer stickiness and reverse negative net-adds in prepaid. The main selling point is that it offers a simple way to pay for goods and services but without the complexity of owning a credit card.
Aimed at the young, the old and everyone in-between. M1 is targeting this card at any consumer who values convenience in general; in other words, the majority of its customer base can benefit. We think there are wide applications for the young, the elderly, migrant workers as well as professionals. For example, parents can charge the card with a fixed mobile allowance as well as their monthly allowances. Spending can be tracked online for better budgeting and financial management. There are no age or income restrictions to obtain this card.
Spotlight on StarHub. We took a look at the prepaid plans that are available on the market today and concluded that StarHub appears to be vulnerable to this new product from M1. We would not be surprised if it runs a negative prepaid net-add number in 2Q12 and 3Q12. Our comparison shows that StarHub currently is the least competitive in mobile voice calls, both locally and internationally. A 20-minute voice call costs SGD1.74 for StarHub versus SGD1.60 for M1 and SingTel, and its IDD rates to Indonesia and the Philippines are 2-4 times higher.
Maintain BUY on M1 with target price of SGD2.85. M1 has guided a stable outlook for FY12, driven by both its mobile data and fixed services segments. We expect its new product to drive higher-quality prepaid net-adds as well. Maintain BUY and target price of SGD2.85, based on implied yield of 5% on FY12F DPS of SGD0.145.
M1 – Kim Eng
Mastering the Art of Prepaid
Prepay it forward. M1’s new prepaid MasterCard offering looks attractive enough to help it regrow its prepaid mobile segment, which has seen negative net-adds for the past two quarters. We maintain our BUY call on M1 and target price of SGD2.85, based on implied yield of 5% on FY12F DPS of SGD0.145.
Pioneers new prepaid MasterCard. The M1 Prepaid MasterCard is a multi-purpose debit card that allows users to top up M1’s prepaid cards, pay public transit fares, ERP and car park charges and make contactless purchases. We think it is an interesting product that should help M1 increase customer stickiness and reverse negative net-adds in prepaid. The main selling point is that it offers a simple way to pay for goods and services but without the complexity of owning a credit card.
Aimed at the young, the old and everyone in-between. M1 is targeting this card at any consumer who values convenience in general; in other words, the majority of its customer base can benefit. We think there are wide applications for the young, the elderly, migrant workers as well as professionals. For example, parents can charge the card with a fixed mobile allowance as well as their monthly allowances. Spending can be tracked online for better budgeting and financial management. There are no age or income restrictions to obtain this card.
Spotlight on StarHub. We took a look at the prepaid plans that are available on the market today and concluded that StarHub appears to be vulnerable to this new product from M1. We would not be surprised if it runs a negative prepaid net-add number in 2Q12 and 3Q12. Our comparison shows that StarHub currently is the least competitive in mobile voice calls, both locally and internationally. A 20-minute voice call costs SGD1.74 for StarHub versus SGD1.60 for M1 and SingTel, and its IDD rates to Indonesia and the Philippines are 2-4 times higher.
Maintain BUY on M1 with target price of SGD2.85. M1 has guided a stable outlook for FY12, driven by both its mobile data and fixed services segments. We expect its new product to drive higher-quality prepaid net-adds as well. Maintain BUY and target price of SGD2.85, based on implied yield of 5% on FY12F DPS of SGD0.145.