Author: kktan
SATS – CIMB
No reprieve anytime soon
Falling margins and profit contraction in 3Q12 reaffirm our bearish stance on SATS. Do not expect a reversal of fortune anytime soon. The disposal of Daniels implies the loss of an income stream, while start up costs for ICT will further eat into profits.
9M12 earnings met our expectations at 73% of FY but fell short of consensus at just 69%. We cut our FY12-14 EPS by up to 8% and our TP, still based on 9.1x CY13 P/E, slips accordingly. Maintain Underperform as SATS’s lackluster outlook does not deserve its current rich valuation.
Shrinking margins
We foresee that SATS will continue to succumb to margin pressure over the next few quarters. Margin contraction continued to plague the group in 3Q12 with net profit margin falling to its lowest level in eight years, wiping out revenue growth and resulting in a 25% yoy decline in profits. The group blamed this on higher raw material costs, energy and other expenses. Poor associates’ performance resulting from weak cargo demand further dampened earnings.
Tepid outlook
We anticipate further margin pressure over the next few quarters arising from start-up costs needed for the International Cruise Terminal, mainly on the hiring front. Furthermore, the lacklustre aviation industry outlook implies subdued pricing power for SATS. Interestingly, management cited this as a more pressing factor weighing its pricing power rather than competition from new entrant ASIG, which according to management has not captured any market share to date.
Rich valuations unjustified
We cut our FY12-14 EPS by up to 8% to reflect higher operating costs. Recent results certainly do not justify a more positive view. Despite a challenging outlook, SATS has rallied in-line with the market and is trading near its 8-year P/E and P/BV mean. We believe that its rally will soon peter out as results show that earnings risks have yet to be fully reflected.
SATS – CIMB
No reprieve anytime soon
Falling margins and profit contraction in 3Q12 reaffirm our bearish stance on SATS. Do not expect a reversal of fortune anytime soon. The disposal of Daniels implies the loss of an income stream, while start up costs for ICT will further eat into profits.
9M12 earnings met our expectations at 73% of FY but fell short of consensus at just 69%. We cut our FY12-14 EPS by up to 8% and our TP, still based on 9.1x CY13 P/E, slips accordingly. Maintain Underperform as SATS’s lackluster outlook does not deserve its current rich valuation.
Shrinking margins
We foresee that SATS will continue to succumb to margin pressure over the next few quarters. Margin contraction continued to plague the group in 3Q12 with net profit margin falling to its lowest level in eight years, wiping out revenue growth and resulting in a 25% yoy decline in profits. The group blamed this on higher raw material costs, energy and other expenses. Poor associates’ performance resulting from weak cargo demand further dampened earnings.
Tepid outlook
We anticipate further margin pressure over the next few quarters arising from start-up costs needed for the International Cruise Terminal, mainly on the hiring front. Furthermore, the lacklustre aviation industry outlook implies subdued pricing power for SATS. Interestingly, management cited this as a more pressing factor weighing its pricing power rather than competition from new entrant ASIG, which according to management has not captured any market share to date.
Rich valuations unjustified
We cut our FY12-14 EPS by up to 8% to reflect higher operating costs. Recent results certainly do not justify a more positive view. Despite a challenging outlook, SATS has rallied in-line with the market and is trading near its 8-year P/E and P/BV mean. We believe that its rally will soon peter out as results show that earnings risks have yet to be fully reflected.
SATS – BT
SATS Q3 profit falls 25.4% on 32.3% higher revenue
Loss of $5.5m on sale of UK food business, JVs’ falling contribution cited
SATS Ltd reported a 25.4 per cent drop in net profit to $38.2 million for the third quarter, from $51.2 million a year earlier, due to rising costs, loss from the disposal of its UK-based food business, falling contribution from joint ventures & associates, and a weaker US dollar.
Revenue grew 32.3 per cent to $442.3 million, from $334.3 million. Earnings per share fell to 3.5 cents from 4.6 cents a year earlier.
During the quarter, SATS recognised a loss of $5.5 million on the disposal of UK-based Daniels.
Food solutions revenue rose 49.4 per cent to $285.3 million, due mainly to the consolidation of Tokyo Flight Kitchen (TFK) which contributed $82 million to its revenue. Excluding TFK, food solutions revenue improved 6.5 per cent, led by more airline meals served during the quarter. Excluding TFK’s expenditure of $80.5 million, group expenditure rose at a lower rate of 9.2 per cent to $318 million, attributed to higher staff, raw material and utilities costs.
In October 2011, SATS announced the disposal of Daniels Group (Daniels) in the UK. The loss on disposal of Daniels was $5.5 million. After adjusting for Daniels’ results and one-off M&A expenses for TFK acquisition incurred in Q3 FY11, SATS’ underlying net profit from continuing operations was $43.7 million.
A combination of weaker cargo volumes by associates (led by Hong Kong) saw SATS’ share of profits of associates and JVs fall 15.7 per cent to $12.9 million.
For the nine months ended December 2011, SATS posted net profit of $120.8 million, down 14.1 per cent from $140.7 million a year earlier. Revenue rose 31 per cent to $1.25 billion. Higher expenditure saw group operating profit drop 3.5 per cent or $4.4 million to $120.7 million. Underlying net profit from continuing operations, after adjusting for TFK and Daniels, dropped at a lower rate of 5.6 per cent to $129.9 million.
As at end-December 2011, SATS’ total assets stood at $2.13 billion, down 7.8 per cent from nine months earlier, while cash balance rose from $296.1 million to $421.3 million.
Equity attributable to shareholders was $1.47 billion, down 3.6 per cent from March 31 2011, due mainly to dividend payments of $188.4 million which were partially offset by profits recorded in the first nine months of the current year. Debt to equity ratio remained steady at 0.12 times.
During the third quarter, SATS saw the number of flights handled and unit services grow 13.3 per cent and 10.5 per cent respectively year-on-year, underpinned by the seasonally high travel season from October to December 2011. Gross meals increased by 4.1 per cent and unit meals by 3 per cent, in line with the higher passenger traffic recorded during the quarter, while cargo throughput went up slightly by 1.6 per cent.
The company is cautious about the final quarter citing the seasonally low travel period between January and March.
It does not expect its Singapore International Cruise Terminal (ICT) venture, where it has a 60 per cent stake in a partnership – with Creuers Cruise Services holding the remaining share – to be profitable in its first year after operations start. The company, which invested $3.6 million in the venture, pointed out that most cruise operators plan their itineraries more than a year in advance. But it remains confident that, given its ability to take larger ships, the ICT will prove to be a profitable venture in the medium to longer term.
SATS shares closed trading yesterday at $2.39, up four cents.
SATS – BT
SATS Q3 profit falls 25.4% on 32.3% higher revenue
Loss of $5.5m on sale of UK food business, JVs’ falling contribution cited
SATS Ltd reported a 25.4 per cent drop in net profit to $38.2 million for the third quarter, from $51.2 million a year earlier, due to rising costs, loss from the disposal of its UK-based food business, falling contribution from joint ventures & associates, and a weaker US dollar.
Revenue grew 32.3 per cent to $442.3 million, from $334.3 million. Earnings per share fell to 3.5 cents from 4.6 cents a year earlier.
During the quarter, SATS recognised a loss of $5.5 million on the disposal of UK-based Daniels.
Food solutions revenue rose 49.4 per cent to $285.3 million, due mainly to the consolidation of Tokyo Flight Kitchen (TFK) which contributed $82 million to its revenue. Excluding TFK, food solutions revenue improved 6.5 per cent, led by more airline meals served during the quarter. Excluding TFK’s expenditure of $80.5 million, group expenditure rose at a lower rate of 9.2 per cent to $318 million, attributed to higher staff, raw material and utilities costs.
In October 2011, SATS announced the disposal of Daniels Group (Daniels) in the UK. The loss on disposal of Daniels was $5.5 million. After adjusting for Daniels’ results and one-off M&A expenses for TFK acquisition incurred in Q3 FY11, SATS’ underlying net profit from continuing operations was $43.7 million.
A combination of weaker cargo volumes by associates (led by Hong Kong) saw SATS’ share of profits of associates and JVs fall 15.7 per cent to $12.9 million.
For the nine months ended December 2011, SATS posted net profit of $120.8 million, down 14.1 per cent from $140.7 million a year earlier. Revenue rose 31 per cent to $1.25 billion. Higher expenditure saw group operating profit drop 3.5 per cent or $4.4 million to $120.7 million. Underlying net profit from continuing operations, after adjusting for TFK and Daniels, dropped at a lower rate of 5.6 per cent to $129.9 million.
As at end-December 2011, SATS’ total assets stood at $2.13 billion, down 7.8 per cent from nine months earlier, while cash balance rose from $296.1 million to $421.3 million.
Equity attributable to shareholders was $1.47 billion, down 3.6 per cent from March 31 2011, due mainly to dividend payments of $188.4 million which were partially offset by profits recorded in the first nine months of the current year. Debt to equity ratio remained steady at 0.12 times.
During the third quarter, SATS saw the number of flights handled and unit services grow 13.3 per cent and 10.5 per cent respectively year-on-year, underpinned by the seasonally high travel season from October to December 2011. Gross meals increased by 4.1 per cent and unit meals by 3 per cent, in line with the higher passenger traffic recorded during the quarter, while cargo throughput went up slightly by 1.6 per cent.
The company is cautious about the final quarter citing the seasonally low travel period between January and March.
It does not expect its Singapore International Cruise Terminal (ICT) venture, where it has a 60 per cent stake in a partnership – with Creuers Cruise Services holding the remaining share – to be profitable in its first year after operations start. The company, which invested $3.6 million in the venture, pointed out that most cruise operators plan their itineraries more than a year in advance. But it remains confident that, given its ability to take larger ships, the ICT will prove to be a profitable venture in the medium to longer term.
SATS shares closed trading yesterday at $2.39, up four cents.
StarHub – DMG
A small glitter
StarHub’s FY11 results were in line, with revenue up 3% while EBITDA rose by a stronger 12.3% y-o-y on good cost management and improved postpaid revenue. The steady core EBITDA margin for 4QFY11 was a pleasant surprise despite a jump in handset cost and given the acute margin pressure at M1 earlier. We tweak our forecast downwards by <1% for FY12/13 following the results and retain our DCF FV of SGD2.80 (WACC: 8.5%, TG: 1.5%). Starhub remains a NEUTRAL as its longer term prospects are clouded by the content carriage ruling, which dilutes its pay-TV franchise, and the competitive headwinds from NGN services.
Broadly in line. Starhub’s FY11 earnings of SGD315.5m appeared to be ahead of consensus and our forecast as 4QFY11 EBITDA surged 11% q-o-q due to the reversal of over-provisioning of staff cost in the earlier quarters. Stripping this out, its earnings were broadly in line. The 4QFY11 revenue growth of 10% q-o-q (+7% q-o-q) reflected the jump in handset sales (+80.3% q-o-q) as the iPhone 4S made its debut last October. Positively, its service revenue grew at the fastest in over 6 quarters, thanks to stronger growth in mobile (+3% y-o-y), pay-TV (+8% y-o-y) and fixed network (+4% y-o-y) revenue, which together contribute 81% of service revenue. We gather that StarHub benefitted from the typically stronger roaming revenue at the year-end, in contrast with M1, which earlier said its roaming revenue was weak and adversely affected by travelers purchasing local starter packs. The other key operational takeaways were: (i) the relatively stable cable broadband segment despite competition from SingTel and the NGN fiber service, and (ii) Starhub’s indication that handset subsidy remains sticky, implying subscriber acquisition cost should remain relatively high in the interim. StarHub did not disclose the number of fiber customers it had but we estimate this to be not too far from M1’s reported 22k.
Better able to monetize data. Starhub said that some 97% of the handsets sold were smartphones, with the take-up among its postpaid and prepaid base at 70% and 30% respectively (implying a smartphone penetration of 50% on its network). We note that StarHub successfully widened its postpaid ARPU over the past few quarters versus a decline at M1, which may reflect that it is better able to monetize data traffic, of which 30-40% is derived from smartphone users. Management acknowledges the shift towards tiered data pricing to further monetize data usage and will continue to monitor the competitive response in the market. On LTE, Starhub expects to roll out its service in 2H2012, with the availability of more devices then to support the launch.
Guidance. Starhub has guided for revenue growth of low single digit for 2012 and its 5 cents/quarter dividend payout, which translates into an attractive 7% yield. It expects capex to not exceed 11% of revenue, including SGD25m carried over from FY11.