Author: kktan
SPH – Kim Eng
Interesting insights
Event
• We hosted a post‐results luncheon for Singapore Press Holdings (SPH) last week. In a lively exchange with fund managers, CEO Alan Chan, CFO Tony Mallek and Senior VP of Finance, Ms Babsy Young, offered interesting insights into the workings of the group.
Key Takeaways
• To questions about SPH’s monopoly in print advertising and the impact of declining readership on ad rates, Mr Chan was quick to defend that the ad rates for the group’s selected newspapers have gone up every year between 2004 and 2008 and were not cut even during the global financial crisis. The last increase was in March this year, he said. To counter online media rivalry – Yahoo! News is posing the strongest challenge in terms of readership – the group recently launched its iPad and iPhone apps to sell news subscription. It charges an additional $2 on top of the normal newspaper subscription from the current quarter.
• SPH’s equities investments are in Singapore and mainly in M1 and StarHub in which it holds 13.9% and 0.8% of the shares, respectively. It has less than 10% of the equities investments in industrial REITs and Suntec REIT. The target benchmark return is 4%.
• A dedicated property investment team will spearhead the growth of SPH’s property asset base. However, no target size has been set yet. A spin‐off of assets into a REIT is possible over the long term when the assets grow in numbers. In fact, its total investment portfolio value of $2.7b is now bigger than Frasers Centrepoint Trust’s $1.5b. Management is still keeping an eye out for sales of GLS sites and possibly TripleOne (said to come with a $1.2b price tag) and 313@Somerset.
• Worries over a dividend cut in the absence of a formal dividend policy were assuaged on management’s assurance that the group’s impeccable track record of 100% payout will not be broken as long as the current CEO is at the helm.
Action & Recommendation
We reiterate our BUY recommendation on SPH with a target price of $4.17, based on a total return of 16.7% (FY Aug12F yield: 6.4%).
SPH – Kim Eng
Interesting insights
Event
• We hosted a post‐results luncheon for Singapore Press Holdings (SPH) last week. In a lively exchange with fund managers, CEO Alan Chan, CFO Tony Mallek and Senior VP of Finance, Ms Babsy Young, offered interesting insights into the workings of the group.
Key Takeaways
• To questions about SPH’s monopoly in print advertising and the impact of declining readership on ad rates, Mr Chan was quick to defend that the ad rates for the group’s selected newspapers have gone up every year between 2004 and 2008 and were not cut even during the global financial crisis. The last increase was in March this year, he said. To counter online media rivalry – Yahoo! News is posing the strongest challenge in terms of readership – the group recently launched its iPad and iPhone apps to sell news subscription. It charges an additional $2 on top of the normal newspaper subscription from the current quarter.
• SPH’s equities investments are in Singapore and mainly in M1 and StarHub in which it holds 13.9% and 0.8% of the shares, respectively. It has less than 10% of the equities investments in industrial REITs and Suntec REIT. The target benchmark return is 4%.
• A dedicated property investment team will spearhead the growth of SPH’s property asset base. However, no target size has been set yet. A spin‐off of assets into a REIT is possible over the long term when the assets grow in numbers. In fact, its total investment portfolio value of $2.7b is now bigger than Frasers Centrepoint Trust’s $1.5b. Management is still keeping an eye out for sales of GLS sites and possibly TripleOne (said to come with a $1.2b price tag) and 313@Somerset.
• Worries over a dividend cut in the absence of a formal dividend policy were assuaged on management’s assurance that the group’s impeccable track record of 100% payout will not be broken as long as the current CEO is at the helm.
Action & Recommendation
We reiterate our BUY recommendation on SPH with a target price of $4.17, based on a total return of 16.7% (FY Aug12F yield: 6.4%).
SATS – Phillip
Buy for the attractive yields
•Robust aviation statistics in Singapore
•TFK’s contribution likely to improve sequentially
•Divestment of Daniels Group a positive development
•Upgrade recommendation to Buy with unchanged target price of S$2.73
Robust aviation statistics in Singapore
SATS reported aviation statistics in Singapore that were slightly above our expectations. Passenger related data continued to register robust growth in line with growing traffic at Changi Airport. Unit Meals produced grew at a slower pace than passengers handled at 3.6%y-y. We view this as a reflection of the growing market share of LCC traffic at Changi Airport, which has lower demand for inflight meals than its full service peers. However, volume for Cargo/Mail processed was weak with marginal growth in the quarter.
TFK’s contribution likely to improve sequentially
SATS’s inflight catering subsidiary in Japan, TFK Corp, is likely to report a significant sequential improvement for the quarter. Following the Earthquake in March, flight traffic in Japan had been improving sequentially. As a proxy to the performance for this subsidiary, TFK’s key customer, Japan Airlines (JAL), reported a 36% increase in average monthly international traffic for the first two months of 2QFY12 (July & August) over 1QFY12.
Divestment of Daniels Group?
SATS acknowledged recent speculation on the possible divestment of Daniels Group, but caution that discussions are not definitive and may not lead to an eventual sale. Due to its limited synergy with the rest of the Group, we view a divestment of Daniels Group as a positive development for SATS. However, the price paid by potential acquirers might be low given the weak market conditions and difficult operating environment in the UK. An eventual sale could trigger a special dividend payout for shareholders.
Valuation & Conclusion
We kept our earnings estimates unchanged pending the announcement of its 2QFY12 results, but see upside risk to our forecasts with the better than expected aviation statistics in Singapore and improving traffic conditions in Japan. For the quarter, we expect SATS to report profits of S$35mn on sales of S$505mn. In valuing the stock of SATS, we used a DCF model (WACC: 8.6%; terminal g: 1%) to arrive at our target price of S$2.73. SATS’s share price declined significantly after our downgrade in July 11 and at the current market price, SATS would generate attractive dividend yields of 6% in FY13-14E after its earnings bottom out in FY12E. Hence, we upgrade our recommendation to Buy, expecting total return of 28% over the next 12months.
SATS – Phillip
Buy for the attractive yields
•Robust aviation statistics in Singapore
•TFK’s contribution likely to improve sequentially
•Divestment of Daniels Group a positive development
•Upgrade recommendation to Buy with unchanged target price of S$2.73
Robust aviation statistics in Singapore
SATS reported aviation statistics in Singapore that were slightly above our expectations. Passenger related data continued to register robust growth in line with growing traffic at Changi Airport. Unit Meals produced grew at a slower pace than passengers handled at 3.6%y-y. We view this as a reflection of the growing market share of LCC traffic at Changi Airport, which has lower demand for inflight meals than its full service peers. However, volume for Cargo/Mail processed was weak with marginal growth in the quarter.
TFK’s contribution likely to improve sequentially
SATS’s inflight catering subsidiary in Japan, TFK Corp, is likely to report a significant sequential improvement for the quarter. Following the Earthquake in March, flight traffic in Japan had been improving sequentially. As a proxy to the performance for this subsidiary, TFK’s key customer, Japan Airlines (JAL), reported a 36% increase in average monthly international traffic for the first two months of 2QFY12 (July & August) over 1QFY12.
Divestment of Daniels Group?
SATS acknowledged recent speculation on the possible divestment of Daniels Group, but caution that discussions are not definitive and may not lead to an eventual sale. Due to its limited synergy with the rest of the Group, we view a divestment of Daniels Group as a positive development for SATS. However, the price paid by potential acquirers might be low given the weak market conditions and difficult operating environment in the UK. An eventual sale could trigger a special dividend payout for shareholders.
Valuation & Conclusion
We kept our earnings estimates unchanged pending the announcement of its 2QFY12 results, but see upside risk to our forecasts with the better than expected aviation statistics in Singapore and improving traffic conditions in Japan. For the quarter, we expect SATS to report profits of S$35mn on sales of S$505mn. In valuing the stock of SATS, we used a DCF model (WACC: 8.6%; terminal g: 1%) to arrive at our target price of S$2.73. SATS’s share price declined significantly after our downgrade in July 11 and at the current market price, SATS would generate attractive dividend yields of 6% in FY13-14E after its earnings bottom out in FY12E. Hence, we upgrade our recommendation to Buy, expecting total return of 28% over the next 12months.
M1 – Phillip
Within expectations
•4%y-y increase in profits for the quarter on track to meet our full year estimates
•Lower handset sales due to higher sales of cheaper phones
•Fibre broadband client base reached 16k
•Establishment of OPCO translates OPEX into CAPEX
•Maintain Hold recommendation with target price of S$2.50
3QFY11 in line with our full year estimates
M1 reported 3QFY11 revenue and profits of S$245mn & S$41mn respectively. The key highlight of the quarter is the significant increase in Fixed service revenue due to significant Fibre take up rates during the quarter. The company’s Fibre client base now stands at 16k as of the quarter end. Revenue contribution from handset sales declined 12% due to sales of cheaper phones in the quarter.
Establishment of own OPCO would reduce OPEX into CAPEX
M1 established its own OPCO for the provision of broadband services. By having its own OPCO, M1 would be able to save on connection fees paid to Nucleus Connect of S$21 & S$75 for residential & corporate customers and translates OPEX into CAPEX. The company’s guidance of an initial S$10mn CAPEX for establishing their own OPCO appears very low. Its network roll out had already reached 50% and upon completion of its rollout, 80-90% of M1’s broadband customers would be served by their own OPCO.
M1’s Postpaid ARPU declined sequentially due to early recognition policy
As mentioned earlier in our reports, M1 employs a fair value accounting policy for the sales of its IPhone plans. Consequently, its Postpaid ARPU booked in the quarter continued to decline as part of the contract revenue had been realised earlier upon initial sale. However, underlying postpaid ARPU remained stable at S$63-64/mth. M1 also reported net adds of 7k & 34k postpaid & prepaid mobile customers for the quarter on low churn rates of 1.3%.
Valuation
We value M1 using a DCF method (WACC: 6.6%, terminal g: 0%) to arrive at our target price of S$2.50. We maintain our view that current market price fairly reflects M1’s outlook and recommend that investors Hold the stock for dividend yields of 6%.