Author: kktan
SingPost – OCBC
SET TO DELIVER ON RAINY DAYS
•Defensiveness amid uncertainty
•Larger deals may be catalysts
•Upgrade to BUY
Increasingly favourable risk-reward ratio.
2012 is likely to present a highly uncertain environment for investors, and we think the 1) defensiveness of SingPost’s business, 2) its consistently decent dividends and 3) the recent stock price correction means the stock’s risk-reward ratio is increasingly favourable for equity investors. The group is also on an acquisition trail to seek further growth opportunities.
Backed by stable operating cash flows.
We like SingPost for its stable operating cash flows given its noncyclical business. Historically, SingPost has weathered economic downturns well, with flat revenues during the Asian financial crisis, a marginal 2% fall during the SARS crisis and a 1.8% growth during the 2008 downturn. The group also has a strong balance sheet and a dominant market position in the local scene. Such factors render it an attractive stock given the expected market volatility in 2012.
Well-perceived deals as catalysts for stock.
The group has been active in acquiring stakes in companies outside of Singapore for both business and geographical diversification, though deal sizes have been relatively small. Looking ahead, we expect to hear more news on the M&A front, especially in logistics and ecommerce. Opportunities can best be found during periods of market uncertainty, and sizeable M&A deals may be catalysts for the stock should SingPost make acquisitions that are well-perceived by the investing community.
Upgrade to BUY.
SingPost has been consistent in its 6.25 S cents/share dividend payout since FY07 and we expect this trend to continue, given its resilient business and stable free cash flows. The stock price has also fallen by about 11% since end Oct last year compared to the STI’s 7.5% drop. Given the current upside potential of 21.9% along with a forecasted dividend yield of 6.7%, we upgrade our rating to BUY with an FCFE-derived fair value estimate of S$1.14 (7.28% cost of equity), which is also backed by the DDM model (2% terminal growth).
TELCOs – DBSV
Hostile non-mobile
• Mobile sector could benefit from lower data-cap and adoption of Android phones.
• Intense competition in broadband and structural changes in pay TV may outweigh the positives.
• StarHub outperformed STI by 32% in 2011, downgrade to HOLD. Prefer SingTel on valuation grounds despite hiccups from weak Indian Rupee
Positive signs emerging in the mobile sector. Firstly, telcos are offering faster speeds (4G) and better quality of service (priority pass to premium customers), to encourage users to adopt lower data-cap. During 4G launch in Dec 2011, SingTel capped 4G data at 10GB versus 50GB on 3G and intends to lower 3G data cap with more 4G roll out in 2012 (see Table 1 on next page). Lower data-cap is likely to enhance data-revenue. Secondly, Android phones from Samsung & HTC support 4G and Near Field Communication (NFC), not available on iPhone yet. 4G support is crucial as telcos may start to offer 4G over smart phones by mid 2012. Besides NFC enabled phones will allow users to “tap” and pay at over 20K retail points and taxis from June 2012 onwards. Telcos stand to benefit from lower handset subsidies (than iPhone) and revenue sharing for certain Apps on Android platform.
StarHub faces uphill task in consumer broadband. StarHub offers broadband speeds of 50 & 100 Mbps on its Hybrid Co-axial Cable (HFC) network compared to SingTel offering up to 15 Mbps using ADSL technology. As National Broadband Network (NBN) reaches 95% of population in June 2012, many of the high-end customers could switch to lower-margin fibre plans. Meanwhile, in the corporate space, StarHub & M1 concede that NBN progress is quite slow due to the lack of control over service provisioning.
Structural changes for pay TV in the longer term. Under Next Generation Interactive Multimedia, Applications and Services (NIMS) project, regulators want to support contents from various providers accessible on a common set top box. The project is likely to be awarded to one of the three telcos in 1H12F and would be based on IPTV platform in our view. StarHub may need to support IPTV platform in addition to HFC platform.
StarHub is trading above +1SD valuations. We prefer SingTel for its (i) cheap valuation of 12x forward PE versus 16x for StarHub and 13x for M1. Downgrade StarHub to HOLD as we trim FY12F/13F earnings by 3%. Maintain HOLD on M1 as consensus FY12F earnings are 7% above ours. As mobile ARPU has not increased at all, fair value accounting for handsets may lead to disappointment in 2012F.
SMRT – OCBC
HIGHER COSTS TO COME AS EXPECTED
• Increased train runs to reduce wait time
• Electricity consumption will go up
• But accounted for in FY12F estimates
Train frequency to increase as expected.
SMRT announced on Sunday that it will increase train frequencies on the NSEWL (North-South East-West Lines) to lower the average interval waiting times during peak commuter travelling periods. Previously, the interval between trains had been between 3.75-5 minutes following the operational loss of 13 damaged trains but will now return to an interval of between 2.14-3 minutes following the subsequent repairs made to 12 of the trains. However, speed restrictions for certain parts of the NSEWL tracks will remain in place – as a precautionary measure pending the conclusion of further investigation – and will add about two minutes to end-to-end travel time.
COI appointed; internal investigation ongoing.
The transport minister has appointed a three-person Committee of Inquiry (COI) to look into last month’s service disruptions. The COI will gather information from SMRT and the Land Transport Authority (LTA) as well as solicit evidence from the public. Meanwhile, internally, SMRT has commenced its own investigation, which is expected to take at least two months to complete.
Higher costs factored in; earnings est. unchanged.
As we have previously lowered our FY12F operating profits to account for the possibility of increased train runs and higher 3Q repair and maintenance costs, we are leaving our earnings estimates unchanged pending the release of SMRT’s 3Q12 results.
Dividend payout uninhibited – maintain BUY.
Even with the expected increase in repair and maintenance expenses as well as electricity consumption costs resulting from a greater number of train runs, we maintain our assertion that SMRT’s dividend payout ability remains intact at least for the year (FY12F dividend yield: 4.4%). Therefore, we leave our DDM-derived fair value of S$2.04 unchanged and maintain our BUY rating on SMRT.
STEng – Lim and Tan
ST ENGINEERING
S$2.68-STE.SI
• STE was, on Wed Dec 28th back to the $2.66 low first reached in mid August, itself the lowest since 2009.
• The stock had bounced strongly to $2.86 in early December after testing $2.67 on Nov 30.
• The significance of the technical support at $2.60-2.70 area lies in the fact that it was the top of the recovery range that prevailed through Apr – Sept’09.
• The uptrend line connecting the low points of Oct’08 ($1.99) and Feb’09 ($2.06) presently points to $2.40-2.50 as the next support should $2.66 give way.
• Assuming an unchanged dividend of 14.55 cents for 2011 as for 2010 (3 cents interim, 4 cents final and 7.55 cents special), yield at current price would be 5.5% and 5.8-6.1% if the stock drops to $2.40-2.50.
• Earnings for the first 9 months of 2011 are 8% ahead of the same period last year.
• This is not bad for a defensive stock like ST Engineering, whose biggest division (ST Aerospace) counts on the Singapore Defense as key customer.
• Buy.
December 2011
STI = 2646.35 (-26.43)
|
Stock |
Period |
EPS cts |
DPS cts |
Mkt |
Yield |
PE |
Div Breakdown |
|
SPH |
FY11 (Aug) |
24 |
24 |
$3.690 |
6.504% |
15.38 |
Interim 7ct ; Final 9ct + 8ct (Special) |
|
SingPost |
FY11 (Mar) |
8.369 |
6.25 |
$0.935 |
6.684% |
11.17 |
Q1, Q2, Q3 1.25ct ; Q4 2.5ct |
|
STI ETF |
Jun-11 |
— |
4.5 |
$2.740 |
3.285% |
— |
Jun11 4.5ct ; Dec10 3.5ct |
|
SATS |
FY11 (Mar) |
17.4 |
17 |
$2.150 |
7.907% |
12.36 |
Final 6ct + Special 6ct ; Interim 5ct |
|
ST Engg |
FY10 (Dec) |
16.21 |
14.55 |
$2.690 |
5.409% |
16.59 |
Final 4ct + 7.55ct (Special) ; Interim 3ct |
Transport
|
Stock |
Period |
EPS cts |
DPS cts |
Mkt |
Yield |
PE |
Div Breakdown |
|
SBSTransit |
FY10 (Dec) |
17.63 |
8.80 |
$1.720 |
5.116% |
9.76 |
Interim 4.5ct ; Final 4.3ct |
|
ComfortDelGro |
FY10 (Dec) |
10.95 |
5.50 |
$1.415 |
3.887% |
12.92 |
Interim 2.7ct ; Final 2.8ct |
|
SMRT |
FY11 (Mar) |
10.6 |
8.5 |
$1.770 |
4.802% |
16.70 |
Interim 1.75ct ; Final 6.75ct |
TELCO
|
Stock |
Period |
EPS cts |
DPS cts |
Mkt |
Yield |
PE |
Div Breakdown |
|
SingTel |
FY11 (Mar) |
24.02 |
25.8 |
$3.090 |
8.350% |
12.86 |
Interim 6.8ct ; Final 9ct + Special 10ct |
|
M1 |
FY10 (Dec) |
17.5 |
17.5 |
$2.500 |
7.000% |
14.29 |
Interim 6.3ct ; Final 7.7ct + Special 3.5ct |
|
StarHub |
FY10 (Dec) |
15.34 |
20 |
$2.910 |
6.873% |
18.97 |
Q1 5ct ; Q2 5ct ; Q3 5ct ; Q4 5ct |
Funds / Infrastructure
|
Stock |
Period |
DPS cts |
Mkt |
Yield |
NAV |
Div Breakdown |
|
SPAus |
1H – Sep11 |
A4.0 (Gross) |
$1.240 |
8.506% |
A$0.89 |
2H11 A4.0ct ; 1H11 A4.0ct |
|
MIIF |
1H – Jun11 |
2.75 |
$0.530 |
10.377% |
$0.81 |
1H11 2.75ct ; 2H10 1.5ct |
* SPAus DPU in A$. Yield is Calculated Using Latest Exchange Rate (1.3184) fm Yahoo
NOTES :
- Mkt Price is as on 30-Dec-11
- SATSvcs : Q212 (Sep11) – Interim 5ct
- SingTel : 1H12 (Sep11) – Interim 6.8ct
- StarHub : Q311 (Sep) – 5ct ; Q211 (Jun) – 5ct ; Q111 (Mar) – 5ct
- SMRT : Q212 (Sep11) – Interim 1.75ct
- SingPost : Q212 (Sep11) – 1.25ct ; Q112 (Jun11) – 1.25ct
- SPH : 2H11 (Aug) – 9ct (Final) + 8ct (Special) ; 1H11 (Feb) – 7ct
- ComfortDelgro : Q211 (Jun) – 2.7ct
- SBSTransit : Q211 (Jun) – 3.1ct
- MIIF : 1H11 (Jun) – 2.75ct ; 2H10 (Dec) – 1.5ct
- ST Engg : 1H11 (Jun) – 3ct
- M1 : 1H11 (Jun) – Interim 6.6ct
- SPAus : 2H11 (Mar11) – A4ct (before tax) / A3.7721ct (after tax) ; 1H11 (Sep10) – A4ct (before tax) / A3.7772ct (after tax)
- StarHub : FY11 Div Guidance – 5ct/Q