Author: kktan
SMRT – Phillip
Lifting our CAPEX estimates
Company Overview
SMRT is a multi-modal land transport operator with exposures to various modes of operations, including rail, bus & taxi services. A significant part of its profits are generated from its ancillary businesses, such as advertising & rental of commercial spaces.
• S$900mn renewal and upgrading of train network
• Majority of expenses over next 4-5yrs
• Expect CAPEX to double historical figures to c.S$200mn/yr
• Impairment charge on goodwill for bus business inevitable
• Reiterate Sell with revised target price of S$1.31
What is the news?
Following a series of service disruptions, SMRT announced plans to renew and upgrade its train network at an estimated cost of S$900mn. As SMRT is still in discussions with LTA for cost sharing arrangements, the exact cost to be incurred by the company is not confirmed. Based on the schedule of upgrades, we believe that majority of the expenses would be incurred over the next 4-5yrs.
How do we view this?
We assume that SMRT would incur 75% of the estimated S$900mn disclosed and reviewed our CAPEX estimates for the major business segments. We expect average CAPEX incurred by SMRT to double its historical figures in FY13-16E, from c.S$100mn to c.S$200mn/yr. However, the strong cash generating nature of its business would allow SMRT to sustain its current annual dividend payout of c.8.5cents per share.
Investment Actions?
We believe that a partial impairment charge on goodwill for the bus business (S$21.7mn on book) is inevitable with oil prices (+7.7% q-q) staying high and is likely to be a key source of variance from market expectations. Even before accounting for this potential impairment charge, we expect profits to decline 9%y-y to S$31mn in 4QFY12E. We roll over our forecasts and reiterate our Sell recommendation on SMRT.
SMRT – Phillip
Lifting our CAPEX estimates
Company Overview
SMRT is a multi-modal land transport operator with exposures to various modes of operations, including rail, bus & taxi services. A significant part of its profits are generated from its ancillary businesses, such as advertising & rental of commercial spaces.
• S$900mn renewal and upgrading of train network
• Majority of expenses over next 4-5yrs
• Expect CAPEX to double historical figures to c.S$200mn/yr
• Impairment charge on goodwill for bus business inevitable
• Reiterate Sell with revised target price of S$1.31
What is the news?
Following a series of service disruptions, SMRT announced plans to renew and upgrade its train network at an estimated cost of S$900mn. As SMRT is still in discussions with LTA for cost sharing arrangements, the exact cost to be incurred by the company is not confirmed. Based on the schedule of upgrades, we believe that majority of the expenses would be incurred over the next 4-5yrs.
How do we view this?
We assume that SMRT would incur 75% of the estimated S$900mn disclosed and reviewed our CAPEX estimates for the major business segments. We expect average CAPEX incurred by SMRT to double its historical figures in FY13-16E, from c.S$100mn to c.S$200mn/yr. However, the strong cash generating nature of its business would allow SMRT to sustain its current annual dividend payout of c.8.5cents per share.
Investment Actions?
We believe that a partial impairment charge on goodwill for the bus business (S$21.7mn on book) is inevitable with oil prices (+7.7% q-q) staying high and is likely to be a key source of variance from market expectations. Even before accounting for this potential impairment charge, we expect profits to decline 9%y-y to S$31mn in 4QFY12E. We roll over our forecasts and reiterate our Sell recommendation on SMRT.
SingTel – CIMB
Selling down Far EasTone
SingTel has sold its entire 3.98% stake in Far EasTone for S$339m or S$0.02/share. This is the first time it has sold any of its assets, in our memory. We view this positively as FET was purely a passive investment; the impact on SingTel is insignificant.
Proceeds will only reduce its net debt/EBITDA by 0.05x to 1.06x, and does not raise the likelihood of a special dividend. No change to our Neutral rating, SOP target price or estimates. Switch to StarHub for potential upside to already-attractive dividends.
What Happened
SingTel has sold its entire 3.98% interest in Taiwan’s Far EasTone Telecommunications for S$339m cash or S$0.02/share. It will recognise a gain of S$118m in 1QFY13.
What We Think
This is mildly positive but does not move the needle much. The cash raised will only nudge its net debt/EBITDA down by 0.05x to 1.06x, not sufficient for SingTel to pay special dividends. SingTel last paid a special DPS of 10cts in 4QFY11 when its net debt/EBITDA fell to 0.8x, substantially below its target of 1.5x. No change to our earnings estimates as the sale is close to the S$361m we have imputed in our SOP valuation.
What You Should Do
Switch to StarHub for potential upside to its already-attractive dividends. SingTel lacks re-rating catalysts, in our opinion. It faces headwinds from a weakening Indian rupee, regulatory risks in India and stiff competition in Australia. However, risks should be mitigated by its modest dividend yields of 5-6%.
SingTel – CIMB
Selling down Far EasTone
SingTel has sold its entire 3.98% stake in Far EasTone for S$339m or S$0.02/share. This is the first time it has sold any of its assets, in our memory. We view this positively as FET was purely a passive investment; the impact on SingTel is insignificant.
Proceeds will only reduce its net debt/EBITDA by 0.05x to 1.06x, and does not raise the likelihood of a special dividend. No change to our Neutral rating, SOP target price or estimates. Switch to StarHub for potential upside to already-attractive dividends.
What Happened
SingTel has sold its entire 3.98% interest in Taiwan’s Far EasTone Telecommunications for S$339m cash or S$0.02/share. It will recognise a gain of S$118m in 1QFY13.
What We Think
This is mildly positive but does not move the needle much. The cash raised will only nudge its net debt/EBITDA down by 0.05x to 1.06x, not sufficient for SingTel to pay special dividends. SingTel last paid a special DPS of 10cts in 4QFY11 when its net debt/EBITDA fell to 0.8x, substantially below its target of 1.5x. No change to our earnings estimates as the sale is close to the S$361m we have imputed in our SOP valuation.
What You Should Do
Switch to StarHub for potential upside to its already-attractive dividends. SingTel lacks re-rating catalysts, in our opinion. It faces headwinds from a weakening Indian rupee, regulatory risks in India and stiff competition in Australia. However, risks should be mitigated by its modest dividend yields of 5-6%.
SMRT – DMG
Announces S$900m of upgrading plans
900m to be rolled out over eight years. SMRT has announced a planned renewal and preventive maintenance across the MRT system which is estimated to cost S$900m. It intends to address the needs of an ageing 25 year old MRT system, on top of the current maintenance regime for the tracks and trains. The cost sharing arrangements between SMRT and LTA are currently in discussion, and this program is expected to roll out over eight years.
Costs borne by SMRT still unclear. Though we do not know SMRT’s share of the costs at this point in time, we think that the impact on SMRT may not be that significant. The simple average of the S$900m amounts to S$113m a year, while our sensitivity analysis shows that if our FY13 base case capex increases by S$100m (or 40%), SMRT’s FY13 PAT would only decrease by 6%. Moreover, we see a possibility of LTA bearing the bulk of the S$900m cost, given its recent efforts to more actively engage in Singapore’s public transport matters (as shown from the S$1.1b Bus Services Enhancement Fund announced in the 2012 budget). Maintain NEUTRAL with TP of S$1.73.