Author: kktan
SingTel – Kim Eng
Lacking Catalysts
Within expectations. FY12 results and dividends were in line with market expectations. FY13 looks set to be a repeat of FY12, but with the additional dampener of start-up losses from its new Digital L!fe division to contend with. Guidance was subdued, with no catalysts to drive either growth or yield. We maintain our SELL call, with a SOTP-derived target price of $2.82. The dividend yield of 4-5% is not attractive when compared to M1 or StarHub’s better yields and higher potential for earnings upside.
Nothing much to shout about. Underlying net profit of SGD3,676m (down 3% YoY) for FY12 and SGD1,023m (up 3% YoY) for 4Q12 were in line with expectations as 4Q12 benefited from seasonally lower operating costs. However, free cashflow declined YoY to SGD3.5b on the back of lower dividend contributions from associates and higher capex in Singapore and Australia. As a result, final dividend was kept at SGD0.09 a share (68% full year payout).
Subdued guidance. FY13 guidance was subdued, with Singapore and Australia revenue to grow in the low single digits and EBITDA to remain stable. Management expects margins to stay under pressure this year as the Digital L!fe division will still be in start-up stage. Australia is preoccupied with fend off competitors willing to sacrifice margins for market share, while in Singapore, TV content cost could be a source of downside to earnings as the Barclay’s Premier League and other “iconic” content comes up for bidding. The current slide in the Indian rupee could also turn into a longer-lived trend.
No upside for dividends. Also, with free cashflow expected to remain stagnant and SingTel already paying out 83% of free cashflow as dividends, there is unlikely to be further upside to dividends. Further, capex is expected to rise further this year on the back of heavy investments in expansion of 4G network coverage and new investments in data centers to support new business initiatives, such as a new cloud computing service targeted at SMEs.
SBSTransit – BT
SBS Transit Q1 profit falls 59%
SBS Transit on Friday reported a 59.2 per cent decrease in year on year net earnings to $$4.84 million for the first quarter ended March 31, 2012.
Revenue increase of 4 per cent year on year to $191.28 million was insufficient to offset the 9.3 per cent increase in operating expenses.
Bus Operations incurred an operating loss of $3.7 million as compared to an operating profit of $0.5 million a year ago due mainly to higher fuel cost, higher depreciation, higher staff costs and higher repairs and maintenance costs, offset by higher bus fare revenue.
Revenue from rail operations for 1Q12 at $34.2 million was higher by 5.3 per cent compared to 1Q11 due to the increase in average daily ridership, offset by the decrease in average fare.
SBSTransit – BT
SBS Transit Q1 profit falls 59%
SBS Transit on Friday reported a 59.2 per cent decrease in year on year net earnings to $$4.84 million for the first quarter ended March 31, 2012.
Revenue increase of 4 per cent year on year to $191.28 million was insufficient to offset the 9.3 per cent increase in operating expenses.
Bus Operations incurred an operating loss of $3.7 million as compared to an operating profit of $0.5 million a year ago due mainly to higher fuel cost, higher depreciation, higher staff costs and higher repairs and maintenance costs, offset by higher bus fare revenue.
Revenue from rail operations for 1Q12 at $34.2 million was higher by 5.3 per cent compared to 1Q11 due to the increase in average daily ridership, offset by the decrease in average fare.
STEng – Kim Eng
Off to a Strong Start
Strong profit growth. ST Engineering (STE) reported a strong set of 1Q2012 results, with Net Profit of SGD 134.4 mil reflecting an increase of 21% YoY. These results were broadly within our FY2012 expectations – we will be maintaining our forecasts and BUY recommendation based on STE’s historical P/E mean of 19x. STE’s growing orderbook, contributed by all four business segments this quarter will continue to provide earnings visibility and resilience amidst the backdrop of global economic uncertainty.
Boosted by healthier margins across the board. Although 1Q2012 revenue came in almost flat YoY, healthier net margins of 8.7% versus 1Q2011 margins of 7.1% boosted profits. Encouragingly, all four business segments posted improved margins, led by ST Marine which benefited from a favourable sales mix.
Strong cashflow. Another highlight of STE’s 1Q2012 financial performance was its strong operating cashflow at SGD 547 mil, which contributed to an improvement of its net cash position to SGD 565 mil from SGD 2.2 mil, and providing support for our forecasted FY2012 DPS of SGD 0.17 (increase of 10% vs FY2011).
Outlook positive. Management forecasts a positive outlook for three of its four business segments. Its Aerospace, Electronics and Marine sectors are expected to record higher PBTs in 1H2012 vs 1H2011. Only its Land Systems segment is expected to show comparable profit.
Solid business fundamentals – Maintain Buy. STE has a solid business model underpinned by defence contracts (40% of 1Q2012 revenue), with earnings visibility continually provided by its growing orderbook. Its business segments continue to show positive macro trends to support growth and provide a basis for earnings resilience. We reiterate our BUY recommendation for STE pegged at 19x FY12 PER, based on its 10-year historical PER mean.
STEng – Phillip
Boosters from Singapore Airshow
Company Overview
ST Engineering (STE) is an integrated engineering group with exposures to four key business segments: Aerospace, Marine, Electronics and Land Systems. The company is also an anchor customer of Singapore’s defence industry.
• 21% increase in PATMI on 1.5% improvement in EBITDA margins
• Associates contributions boosted by biannual Singapore Airshow
• Order Book of S$12.2bn (2.0X annual sales)
• Maintain Accumulate with unchanged TP of S$3.37
What is the news?
STE reported profit growth of 21% as compared to the same quarter a year ago. EBITDA margins improved by 1.5ppt largely due to more favourable product mix and provisions related to the ROPAX contract termination that was made in 1QFY11. The Group’s result was boosted by the biannual Singapore Airshow that was held in the quarter, which accounted for majority of the S$10.8mn increase in PBT contributions from its Associated companies. Order book was held steady at S$12.2bn (2.0X annual sales).
How do we view this?
The results were strong, considering that first quarter is usually a weaker quarter for STE, and had already formed 24.8% of our full year estimates. STE’s order book of S$12.2bn is probably above S$13bn, if the recent contract wins in April were included (See: Defence contracts lead the way!, dated 13th April 2012).
Investment Actions?
We kept our forecasts unchanged and maintain our Accumulate rating on STE. STE’s earning yield spreads and P/E multiples remain below historical averages, reflecting undervaluation in this defensive stock, in our view.