Author: kktan
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.
MIIF – DBSV
Buoyant dividend income in 1Q
• Higher dividend income in 1Q12 driven by organic growth and bigger stake in Taiwan cable TV asset
• Key risk is toll rate cut at Hua Nan Expressway, but this is already expected
• Risk-reward continues to be attractive given 9.5% yield; Maintain BUY with TP of S$0.64
Highlights
1Q12 results in line. The fund generated net dividend income of S$21.3m, up 181% y-o-y, largely owing to the higher 47.5% stake in Taiwan Broadband Communications (TBC), compared to 20% last year. Even if we strip out the impact of a larger stake, dividends from TBC grew 6%, in line with organic growth at the asset last year. To note, 1Q dividend income is derived only from TBC (half-yearly payout) as the other two assets – Changshu Xinghua Port (CXP) and Hua Nan Expressway (HNE) – only pay dividends once a year in the 3rd quarter of the year.
Underlying assets performance healthy. Operational performance at TBC in 1Q12 continued to be healthy with EBITDA growth of 6% y-o-y, as growth in digital cable TV subscribers surpassed expectations. HNE also surprised on the upside, delivering 14% EBITDA growth in 1Q12, driven by higher traffic volumes benefiting from traffic feed from newly opened Guanghe Expressway. At CXP, revenue grew 9% y-o-y but EBITDA fell 10% owing to margin pressures and one-off costs.
Our View
Fund remains well on track to pay out 2.75Scts semi-annual dividends in FY12/13. Operational performance at HNE and CXP is expected to remain healthy. The key risk is a possible toll rate reduction at HNE Phase I, as the Guangdong government will be introducing uniform toll road standards in 2012. Our numbers already reflect a toll rate cut at HNE Phase I of about 20% by mid-2012, but this could be further delayed, as there has been no communication yet from local authorities.
Recommendation
Yield of 9.5% is hard to ignore. No change to our SOTP valuation of S$0.64, as we have already factored in downside at HNE. Maintain BUY for close to 20% total return potential. A worst-case impact from toll rate cut at HNE could be a cut in FY12 DPU to 5.0Scts to smoothen the impact in FY12/13. This still implies 8.6% yield at current prices. The fund bought back 13.7m shares in 1Q12 and we expect share buyback activities to continue, given the share price discount to fund NAV and the lack of suitable acquisition opportunities in the near term.
MIIF – DBSV
Buoyant dividend income in 1Q
• Higher dividend income in 1Q12 driven by organic growth and bigger stake in Taiwan cable TV asset
• Key risk is toll rate cut at Hua Nan Expressway, but this is already expected
• Risk-reward continues to be attractive given 9.5% yield; Maintain BUY with TP of S$0.64
Highlights
1Q12 results in line. The fund generated net dividend income of S$21.3m, up 181% y-o-y, largely owing to the higher 47.5% stake in Taiwan Broadband Communications (TBC), compared to 20% last year. Even if we strip out the impact of a larger stake, dividends from TBC grew 6%, in line with organic growth at the asset last year. To note, 1Q dividend income is derived only from TBC (half-yearly payout) as the other two assets – Changshu Xinghua Port (CXP) and Hua Nan Expressway (HNE) – only pay dividends once a year in the 3rd quarter of the year.
Underlying assets performance healthy. Operational performance at TBC in 1Q12 continued to be healthy with EBITDA growth of 6% y-o-y, as growth in digital cable TV subscribers surpassed expectations. HNE also surprised on the upside, delivering 14% EBITDA growth in 1Q12, driven by higher traffic volumes benefiting from traffic feed from newly opened Guanghe Expressway. At CXP, revenue grew 9% y-o-y but EBITDA fell 10% owing to margin pressures and one-off costs.
Our View
Fund remains well on track to pay out 2.75Scts semi-annual dividends in FY12/13. Operational performance at HNE and CXP is expected to remain healthy. The key risk is a possible toll rate reduction at HNE Phase I, as the Guangdong government will be introducing uniform toll road standards in 2012. Our numbers already reflect a toll rate cut at HNE Phase I of about 20% by mid-2012, but this could be further delayed, as there has been no communication yet from local authorities.
Recommendation
Yield of 9.5% is hard to ignore. No change to our SOTP valuation of S$0.64, as we have already factored in downside at HNE. Maintain BUY for close to 20% total return potential. A worst-case impact from toll rate cut at HNE could be a cut in FY12 DPU to 5.0Scts to smoothen the impact in FY12/13. This still implies 8.6% yield at current prices. The fund bought back 13.7m shares in 1Q12 and we expect share buyback activities to continue, given the share price discount to fund NAV and the lack of suitable acquisition opportunities in the near term.
STEng – OCBC
1Q12 EARNINGS IN LINE
•Gross margin gain, PATMI up 20%
•Marine – most improved segment
•Order book remains healthy at S$12.2m
1Q12 financials in line with market expectations
ST Engineering (STE) 1Q12 revenue slipped 2% YoY to S$1.5b but PATMI jumped 21% higher to S$134m. This set of results is aligned with the market’s expectations, with both its 1Q12 revenue and PATMI meeting 24% of consensus and our full-year estimates. STE’s higher PATMI in 1Q12 can primarily be attributed to two factors – 1) a 2.2ppt gain in gross margin to 21% and 2) a 173% jump in share of profits of associated companies which, according to management, was boosted by contribution from its associated company that organized the biannual Singapore Airshow.
Most segments remain healthy
STE’s Aerospace and Electronics segments displayed stable growth in 1Q12. Aerospace and Electronics revenues and grew 1% and 2% respectively to S$456m and S$452m, while their pre-tax profits 5% and 4% to S$60m and S$34m. However, STE’s Land Systems revenue and pre-tax profit contracted 11% and 7% respectively to S$317m and S$24m. This contraction was due to the completion of deliveries of Warthog vehicles to the British military in 1H11. On a positive note, Marine segment’s pre-tax profit rose 20% to S$29m, despite recording 10% lower revenue of S$244m. The Marine segment’s improved margin was the result of a more favourable sales mix, coupled with loss provisions made in 1Q11 to a Ropax ferry shipbuilding contract with Louis Dreyfus Armateurs.
Maintain buy
Management remains optimistic and maintained its guidance of revenue and pre-tax profit growth for FY12. STE’s recent strong flow of new orders should provide investors ample confidence on its ability to replenish, or even grow, its healthy order book of S$12.2b at end-1Q12. We maintain our fair value estimate of S$3.50/share and BUY rating on STE.
MIIF – AmFraser
Picture looks good
• Good set of results, very positive signs: MIIF released 2012 Q1 results that indicate strong sustainable performance. Generally, pricing power was maintained and organic growth continues to be delivered.
• Changshu Xinghua Port (CXP) enjoying pricing power: The port slightly underperformed our expectations in volumes, but this was more than made up by “higher average tariffs on general cargo volumes”, raising revenues by 8.8% on a 2% fall in tonnage. A one-off expense with regard to building a temporary stackyard to store the large paper and pulp volumes dampened EBITDA margin this quarter to 43% from 52% – we expect full-year margin at 48%.
• Large 17.3% vehicle volume jump at Hua Nan Expressway (HNE) allowed revenue to step up 12.6%, beating our expectations. Management attributed the improvement to the opening of GuangHe Expressway, a complementary road which feeds into HNE, and the return of vehicles from the now-severely-congested Xinguang Expressway whose detolling last year reduced vehicle volume at HNE. The key risk remains a potential toll-rate reduction, but our valuation already factors this in.
• Taiwan Broadband Communications (TBC) growth exactly in line, with revenue growing 4.5% YoY and EBITDA margin up 0.9ppt. We attribute the margin increase to the high growth in the Digital TV (up 52.6%) and Broadband (up 6.6%) segments, for which we expect 38% and 7% full-year growth respectively. We see a potential for upward revision in the Digital TV segment in coming quarters if the current growth rate persists.
• Now DPU looks to be covered just after 2013: We expect the 5.5c dividend to be maintained. Given the improved outlook on MIIF’s assets, we now expect operating earnings to cover the dividend by early 2014 instead of late 2014, and even as early as 2013 if the potential upward revisions do materialize.
• Fund selling action halfway done: The Abu Dhabi Investment Agency (ADIA) reduced its stake from 10% to 4.9% in the last half year. We take heart in the emergence of two value-oriented funds—Asset Value Investors and Long Investment Management—as substantial share-holders. We believe the buying speaks stronger than the selling (which is for internal reasons).
• Still our high-yield TOP pick: At 9.6% yield, MIIF continues to outshine other yield plays, especially given the strong organic growth in their assets. Our RNAV for MIIF is maintained at $0.690, with the increases in asset valuations offsetting the fall in cash due to share buybacks. MIIF offers a very high yield, future dividend growth, and a decent capital gains potential. Buy.