Author: kktan
StarHub – Kim Eng
Strong margins
Strong close to 2011. The feared negative impact on margins from strong iPhone 4S sales did not materialise. Even excluding capexrelated cost provisions, service EBITDA margin was in line with guidance of 30%. StarHub continued to guide for revenue growth and stable margins in 2012, and reiterated its commitment to a stable dividend. Buy with target price of $3.27 based on a 6.5% yield target.
Above expectations. StarHub brought FY11 to a strong close on outstanding performances in almost all segments, especially postpaid mobile. Although full-year net profit of $315.5m included write-backs of capex-related cost provisions, we estimate a net profit of $302m if those write-backs were excluded, in line with consensus. Also, the negative impact feared from iPhone-related subsidies did not materialise as service EBITDA margin was resilient at 30.7% (post-adjustments).
Mobile postpaid outperformed. Postpaid mobile did particularly well as StarHub gained at the high-end. Average revenue per user (ARPU) rose 4% YoY in 4Q11 on the back of an increasing mix of high-end SmartSurf plans. Residential broadband revenue held steady, with netadd of 2,000 customers despite lower ARPU as StarHub drove its hubbing proposition forward. Finally, Pay TV benefited from a commitment fee increase last August.
Margins held up despite strong iPhone 4S sales. Sales of equipment spiked 69% YoY to over 20% of sales on higher iPhone 4S sign-ups. As with M1, StarHub also reported heavy recontracts of the iPhone 4S, launched in end-October, from out-of-contract 3GS users. We expect this to start to normalise in 1Q12 and retreat further in 2Q12. However, margins held up well on lower operating costs. Even after the provision adjustment, EBITDA margin was in line with guidance.
Positive guidance. StarHub’s 2012 guidance of low single-digit growth in revenue and service EBITDA margin of 30% is virtually unchanged from 2011, highlighting management’s confidence despite the slowing economic conditions. In addition to the normal quarterly dividend of $0.05/share declared for 4Q11, management reiterated its commitment to continue its dividend stance, for another $0.20/share in 2012.
StarHub – BT
StarHub’s Q4 net profit up 15.1% at $92.6m
Mobile business main Q4 revenue driver at $312.2m, up 3.1%
STEADY performance from its mobile and broadband businesses pushed StarHub’s net profit for 2011 to $315.5 million, up 19.9 per cent from the previous year.
The triple-play provider saw fourth-quarter net profit grow 15.1 per cent to hit $92.6 million.
Q4 and full-year operating revenues rose 9.6 per cent to $612.6 million and 3.3 per cent to $2.31 billion respectively.
Mobile revenue – still the main contributor to StarHub’s business at 51 per cent in the last quarter of 2011 – grew 3.1 per cent over the corresponding period the year before, to $312.2 million. For the year, mobile revenue was $1.22 billion, up 3.1 per cent over 2010.
One factor driving mobile revenues was increased Arpu (average revenue per user) as Singapore’s smartphone-savvy population continued to spend more on mobile services and data, said StarHub’s chief operating officer Tan Tong Hai.
He said mobile post- paid revenue grew 6 per cent, and that non-voice services contributed 39.8 per cent of Arpu for the customer segment in Q4. ‘This reflects steady growth in mobile usage.’
The company is looking to mobile services growth to bolster the segment, since the country’s subscriber base is fairly saturated at 149 per cent, so growth by absolute numbers will be slow.
Post-paid Arpu stood at $74 for the year, up from $72 in 2010. Its post-paid base was 1.06 million users, 30,000 more than the previous year.
In contrast, while StarHub added 16,000 more pre-paid customers to total 1.12 million in the segment, its Arpu continued to decline as fewer consumed mobile services. As a result, pre-paid mobile services revenue dropped 6 per cent to $249.4 million over the year.
Its second pillar of revenue, its broadband business, took in $60.6 million for the fourth quarter and $241.7 million for the year, representing a growth of 2.7 per cent and 2.4 per cent over the same periods the year before.
The company’s fixed network services revenue also rose 3 per cent to hit $88 million in the fourth quarter, and 1.5 per cent to $336.7 million for the year.
The provider, which started rolling out services on the next-generation fibre nationwide broadband network (NBN) last year, started seeing those subscriptions contributing to its data and Internet services portfolio.
StarHub CEO Neil Montefiore noted that this contribution remains low for now, as the country’s base of subscribers starts to ramp up and as infrastructure owner OpenNet continues to cover the island.
The company’s pay cable TV revenue dipped from the year before, however, since StarHub lost exclusive broadcast rights to the Barclays Premier League (BPL) to SingTel. Revenue for 2011 was $376 million, dropping $19.4 million from 2010, as the company was forced to drop its ‘sports’ content subscription price. The company also said 2010’s revenues benefited from the FIFA World Cup.
Mr Montefiore pointed out that pay-TV revenue has since stabilised, and that its number of subscribers stood at 545,000 as at Dec 31, 2011, compared with 538,000 at end-2010.
StarHub estimates it had 45.2 per cent share of the country’s pay-TV market by the end of 2011.
Renewing pay-TV content and set-top boxes contributed to a rise in capex, commented Kwek Buck Chye, StarHub’s chief financial officer.
Higher sub-contractor costs for the company’s infrastructure expansion efforts also added to capex.
The group’s operating expenses (including cost of sales) went up 1.8 per cent to hit $1.94 billion. Higher marketing and staff costs were mitigated by lower other expenses such as maintenance and operating leases. It ended the year with cash and cash equivalents of $179.2 million, and is recommending a final fourth quarter dividend of 5 cents per share. It intends to maintain its annual cash payout of 20 cents at the end of this year.
The counter closed one cent higher at $2.83 yesterday.
The telco is also one of the first to acquire a vanity top-level domain name, ‘.starhub’, and has paid US$185,000 for the privilege.
StarHub – BT
StarHub’s Q4 net profit up 15.1% at $92.6m
Mobile business main Q4 revenue driver at $312.2m, up 3.1%
STEADY performance from its mobile and broadband businesses pushed StarHub’s net profit for 2011 to $315.5 million, up 19.9 per cent from the previous year.
The triple-play provider saw fourth-quarter net profit grow 15.1 per cent to hit $92.6 million.
Q4 and full-year operating revenues rose 9.6 per cent to $612.6 million and 3.3 per cent to $2.31 billion respectively.
Mobile revenue – still the main contributor to StarHub’s business at 51 per cent in the last quarter of 2011 – grew 3.1 per cent over the corresponding period the year before, to $312.2 million. For the year, mobile revenue was $1.22 billion, up 3.1 per cent over 2010.
One factor driving mobile revenues was increased Arpu (average revenue per user) as Singapore’s smartphone-savvy population continued to spend more on mobile services and data, said StarHub’s chief operating officer Tan Tong Hai.
He said mobile post- paid revenue grew 6 per cent, and that non-voice services contributed 39.8 per cent of Arpu for the customer segment in Q4. ‘This reflects steady growth in mobile usage.’
The company is looking to mobile services growth to bolster the segment, since the country’s subscriber base is fairly saturated at 149 per cent, so growth by absolute numbers will be slow.
Post-paid Arpu stood at $74 for the year, up from $72 in 2010. Its post-paid base was 1.06 million users, 30,000 more than the previous year.
In contrast, while StarHub added 16,000 more pre-paid customers to total 1.12 million in the segment, its Arpu continued to decline as fewer consumed mobile services. As a result, pre-paid mobile services revenue dropped 6 per cent to $249.4 million over the year.
Its second pillar of revenue, its broadband business, took in $60.6 million for the fourth quarter and $241.7 million for the year, representing a growth of 2.7 per cent and 2.4 per cent over the same periods the year before.
The company’s fixed network services revenue also rose 3 per cent to hit $88 million in the fourth quarter, and 1.5 per cent to $336.7 million for the year.
The provider, which started rolling out services on the next-generation fibre nationwide broadband network (NBN) last year, started seeing those subscriptions contributing to its data and Internet services portfolio.
StarHub CEO Neil Montefiore noted that this contribution remains low for now, as the country’s base of subscribers starts to ramp up and as infrastructure owner OpenNet continues to cover the island.
The company’s pay cable TV revenue dipped from the year before, however, since StarHub lost exclusive broadcast rights to the Barclays Premier League (BPL) to SingTel. Revenue for 2011 was $376 million, dropping $19.4 million from 2010, as the company was forced to drop its ‘sports’ content subscription price. The company also said 2010’s revenues benefited from the FIFA World Cup.
Mr Montefiore pointed out that pay-TV revenue has since stabilised, and that its number of subscribers stood at 545,000 as at Dec 31, 2011, compared with 538,000 at end-2010.
StarHub estimates it had 45.2 per cent share of the country’s pay-TV market by the end of 2011.
Renewing pay-TV content and set-top boxes contributed to a rise in capex, commented Kwek Buck Chye, StarHub’s chief financial officer.
Higher sub-contractor costs for the company’s infrastructure expansion efforts also added to capex.
The group’s operating expenses (including cost of sales) went up 1.8 per cent to hit $1.94 billion. Higher marketing and staff costs were mitigated by lower other expenses such as maintenance and operating leases. It ended the year with cash and cash equivalents of $179.2 million, and is recommending a final fourth quarter dividend of 5 cents per share. It intends to maintain its annual cash payout of 20 cents at the end of this year.
The counter closed one cent higher at $2.83 yesterday.
The telco is also one of the first to acquire a vanity top-level domain name, ‘.starhub’, and has paid US$185,000 for the privilege.
SMRT – BT
Analysts zero in on SMRT’s mounting costs
ANALYSTS dubbed SMRT Corporation’s third-quarter showing an ‘uninspiring’ one as the transport group reported numbers that showed margins coming under siege from higher diesel and repair and maintenance costs.
Though SMRT’s Q3 revenue of $268.2 million met consensus estimates, analysts chose to focus on the pressures on its bottom line – net profit for the quarter fell 13.9 per cent to $37 million.
‘Persistent cost pressure remains our biggest concern as SMRT’s (earnings before interest and taxes) margin narrowed 4.6 percentage points to 16.7 per cent in 9M 2012 compared to 21.3 per cent a year ago,’ Kim Eng Research’s Eric Ong said in a report yesterday. He maintained his ‘sell’ call on the stock, with a target price of $1.50.
The pressure of operating costs is not expected to let up in Q4, prompting OCBC Investment Research analysts to lower their net profit estimate for SMRT by 4 per cent, even though they maintained their ‘buy’ call on the stock.
‘With an uninspiring Q3 2012 performance, consensus estimates for SMRT’s FY2012 earnings will likely come off,’ the OCBC report said.
Likewise, Phillip Securities Research’s Derrick Heng has cut his earnings estimates by between 6.4 and 10.2 per cent for the next three years, citing the ‘weak profit outlook’, among several things.
Investigations by the Committee of Inquiry (COI) – following the two major train service disruptions of December – have also given analysts reason to eye SMRT’s future with some wariness.
‘We remain cautious on the counter arising from regulatory risks post the release of the COI’s findings, and recommendations . . . We believe it is likely to be more onerous on the public transport operators going forward,’ said DBS Group Research’s Andy Sim in a report yesterday.
CIMB Research’s Lee Wen Ching also noted the possibility of the fallout from the service disruptions having a longer-term impact.
‘SMRT’s operations remain under scrutiny by the regulatory bodies. If these result in a more stringent maintenance regime, its cost structure may be permanently elevated,’ Ms Lee said in a report.
She believes that the stock’s current valuations – at $1.74 when the report was written – are ‘unjustified’, pegging its value at $1.55 instead.
‘SMRT trades at a premium to its peer ComfortDelGro (CD) despite weaker earnings prospects,’ Ms Lee said.
Even as jittery punters are wont to steer clear of SMRT shares in the meantime, OCBC’s analysts believe that ‘an attractive entry point’ for the counter has emerged, given that it has lost 1.7 per cent of its value since the start of the year and has an unchanged dividend policy.
Yesterday, SMRT also announced a $195 million undertaking to replace the signalling system on the North-South East-West Lines.
The counter closed a cent lower at $1.73 yesterday.
SMRT – DBSV
Riding against the tide
At a Glance
• 3Q12 net profit dropped 14% y-o-y as expected
• Expect higher costs in 4Q and beyond, largely from train service disruptions related costs, higher staff and energy costs
• Regulatory risks will also cap upside in share price
• Cautious view maintained, Fully Valued and TP at S$1.50
Comment on Results
3Q drop as expected. Net profit dropped by -14% y-o-y to S$37m, while revenue grew by 10% to S$268.2m on higher ridership, taxis, rental and advertising revenues. The drop in profits arose from higher electricity and diesel costs (S$40.4m, +31%), repair & maintenance (S$20.9m, +15%) and other operating expenses (S$48.1m, +21%). EBIT fell to S$46.4m (-11% yo-y) while margins dropped by 4.1ppts to 17.3% (3Q11: 21.4%). Largest contributor, train segment posted 14% y-o-y drop in EBIT to S$25.7m, but this was partially helped by stronger contribution from rental (S$15.6m, +9% y-o-y) and advertising (S$5.6m, +18% y-o-y) segments.
4Q to be lackluster with rising expenses. 9M12 net profit formed 77% of our full year estimates (9M11: 79% of FY11). We maintain our projected c.15% fall in FY12F net profit, and a lackluster growth of 1% in FY13F. Management has guided for its train profitability to be impacted by higher professional, legal and repair & maintenance costs arising from last Dec’s MRT train breakdowns. In addition, its bus operations remain in the red due to high diesel costs and impairment of goodwill could ensue if this persists (current intangibles for Bus: S$21.7m).
Recommendation
Cautious view maintained, TP $1.50. We remain cautious on the counter arising from regulatory risks post the release of the Committee of Inquiry’s findings, and recommendations. LTA, in response to a newspaper forum on 27 Jan, indicated that it “will thoroughly review the regulatory and penalty framework and its oversight over the operators’ maintenance regimes to strengthen it where necessary“. We believe it is likely to be more onerous on the public transport operators going forward. We continue to prefer ComfortDelGro (at c.12.2x FY12F PE) for its lower valuation, and more geographically diverse business contributions. Our TP of S$1.50 is based on average of PE (13x FY12F) and DCF (WACC: 7.1%, t=1%).