Author: kktan
SMRT – CIMB
Muted outlook
• Downgrade to Underperform from Neutral with lower target price of S$1.95 (from S$2.31). We cut our DCF-derived target price for SMRT to S$1.95 (WACC: 8.4%, terminal growth 2%) from S$2.31 after: 1) cutting our EPS estimates by 3-4% for FY12-13; 2) adjusting for higher capex assumptions; and 3) re-aligning discount rates with our house rates. We remain wary of losses on the Circle Line with the opening of more stations in 2011 and margin pressure from rising fuel and electricity costs. Valuations are also rich at 19x CY11 P/E. As such, we downgrade the stock to Underperform and recommend a switch to peer, ComfortDelgro (Outperform, target S$1.83), which trades at a more reasonable 13x CY11 P/E. We see de-rating catalysts from higher-than-expected operating expenses.
• Circle Line may not break even as fast as North East Line (NEL). NEL took over three years to break even and this was achieved with the help of a large population catchment in North-East Singapore (about 15% of the local resident population) and rationalisation of bus routes. In the absence of such advantages, we estimate that Circle Lind could take four years or more after the opening of all stages to break even.
• Future contracts could be less lucrative. With proposed amendments to the Rapid Transit Systems Act, we believe future contracts awarded could be less lucrative.
SingTel – BT
SingTel Optus sued for ‘misleading’ ads
SingTel Optus Pty Ltd misled Australians with advertisements touting the company’s broadband speeds and data plans, the Australian Competition and Consumer Commission (ACCC) said.
The commission sued SingTel Optus, a unit of South-east Asia’s biggest phone operator Singapore Telecommunications, in the Federal Court of Australia yesterday, seeking to stop SingTel Optus from running the ads, force it to advertise corrections and pay fines.
The company’s advertisements fail to inform customers of limitations on promised download speeds, the lawsuit claims.
In its ‘Think Bigger’ campaign, SingTel Optus advertises a 120-gigabyte plan for A$49.99 (S$61.60) a month, while the ‘Supersonic’ broadband campaign promises download speeds four times faster than SingTel’s original plan.
‘Once the customer exceeds the peak data allowance, the Internet connection is limited to speed of 64 kbps,’ the commission said in a statement yesterday. ‘The ACCC alleges that Optus did not sufficiently or clearly disclose, and in some cases did not disclose at all, these qualifications.’
The lawsuit will proceed quicker than usual, having been placed on the court’s ‘fast track’ list, the commission said. A hearing is scheduled for Sept 16, the agency said.
SingTel Optus will work with the competition commission to resolve its concerns, the company said in a statement.
‘We go to great length to offer the best products and services to our customers and to explain the value of those offers clearly,’ SingTel Optus said. — Bloomberg
SingPost – Lim and Tan
• The close yesterday is only 7 cents away from its peak of $1.30 reached in mid-07.
• The “boring” company has well outperformed SingTel, which still owns 25% of it: Sing Post started the year at $1.02 and Sing Tel at where it is currently ($3.10 yesterday).
• One development which we would not rule out is Sing Tel divesting or reducing its stake in Sing Post. (Sing Tel sold 95 mln Sing Post shares on Dec 12 ’05 at $1.107 each.)
• Any impact is however unlikely to be significant given that the overhang has not been an issue all these years. Besides, the stake worth almost $600 mln is of little strategic importance to Sing Tel, with a market cap of $almost $50 bln.
• The other development of likely significance is the government land tender in Eunos right next door to the Post Centre, which Sing Post had hoped to sell before being jettisoned because of the financial crisis. The land tender is expected before end 2010.
• Even if the stock were to drop on news of share placement by Sing Tel, a new “base” / support has been established at $1.13, the price at which SingPost has, between Aug 12th and 31st, bought back 8.597 mln shares. (All, except the buy-back of 1.968 mln shares on Aug 19th was at $1.12 a share.)
• We expect the 2007 peak to tempt some to take profit / sell. At $1.30, yield would be 4.8%.
SingPost – Lim and Tan
• The close yesterday is only 7 cents away from its peak of $1.30 reached in mid-07.
• The “boring” company has well outperformed SingTel, which still owns 25% of it: Sing Post started the year at $1.02 and Sing Tel at where it is currently ($3.10 yesterday).
• One development which we would not rule out is Sing Tel divesting or reducing its stake in Sing Post. (Sing Tel sold 95 mln Sing Post shares on Dec 12 ’05 at $1.107 each.)
• Any impact is however unlikely to be significant given that the overhang has not been an issue all these years. Besides, the stake worth almost $600 mln is of little strategic importance to Sing Tel, with a market cap of $almost $50 bln.
• The other development of likely significance is the government land tender in Eunos right next door to the Post Centre, which Sing Post had hoped to sell before being jettisoned because of the financial crisis. The land tender is expected before end 2010.
• Even if the stock were to drop on news of share placement by Sing Tel, a new “base” / support has been established at $1.13, the price at which SingPost has, between Aug 12th and 31st, bought back 8.597 mln shares. (All, except the buy-back of 1.968 mln shares on Aug 19th was at $1.12 a share.)
• We expect the 2007 peak to tempt some to take profit / sell. At $1.30, yield would be 4.8%.
SPH – DBSV
Cash falling from the Sky
• SPH estimated to have collected S$429m cash from Sky11 on TOP, equating to 27Scts/share
• Final/special dividend could exceed consensus’ expectations; we expect 24 Scts/5.7% final yield
• Buy ahead of full year results on 12 Oct. Reiterate Buy, SOP backed TP raised to S$4.52
Expect above-consensus final dividend; we look for 24 Scts final/special at full year. We are hopeful that final/special dividends to be declared at full year could beat consensus’ average of c.19 Scts. We have raised our final/special dividend expectation to 24 Scts premised on: (i) large cash inflow from Sky11; (ii) strong recovery in AdEx supported by economic growth; and (iii) historical track record of a payout of above 80% of PBIT.
Chunk of cash (S$429m) falling from the Sky. As at end 3Q10, SPH had S$663m in accounts receivables. Of this, we estimate that about S$530m were receivables from Sky@Eleven (Sky11), as the property development project was on the deferred payment scheme. Netting off 15% of sales proceeds (c.S$101m) to be collected upon transfer of legal title (expected about 1 year from TOP), we estimate that the Group will have collected/will be collecting c.S$429m in cash, equating to c.27 Scts/share or a cash yield of 6.4%.
AdEx shows strong YTD growth of 13.8%; dividend payout >80% PBIT. Operations remain firm, with Nielsen Media Research’s display & classified AdEx registering YTD growth (Sep’09-Jul’10) of 13.8%. July’s growth was 20% yoy. History has shown that dividend payout has also been above c.80% PBIT for the past 10 years, except for last year (76%). We believe this practice should continue, on the back of firm fundamentals and operations.
Buy ahead of results release (12 Oct); TP raised to S$4.52. We raised our sum-of-parts TP to S$4.52 as we factor in a higher valuation for Paragon, pegging a 10% discount to latest valuation (S$2.28bn), up from S$1.98bn previously. The possibility of a higher-than-expected final DPS (24 Scts or 5.7% yield) is attractive, leading to a full year dividend yield of 7.4% – 7 cents were paid at interim stage. We reiterate SPH as a top pick among our dividend yield plays, and a proxy riding on the economic recovery in Singapore.