Author: kktan
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.
TELCOs – BT
Telco stocks slip on fears of keener competition
High mobile penetration makes it unlikely for new player to bid for final 3G spectrum
TELCO stocks fell yesterday on concerns that more competitors may join the market, after the government announced that it is seeking bids for its final third-generation (3G) mobile spectrum.
But market watchers felt that the selling was unwarranted, as the high mobile penetration in Singapore makes it unlikely for a new player to bid for the spectrum.
Singapore Telecommunications (SingTel) dipped as much as 2.3 per cent yesterday before closing 0.3 per cent lower at $3.10. StarHub ended 2.8 per cent down at $2.42, while M1, the smallest of the three operators, slipped 1.8 per cent to $2.22. The benchmark Straits Times Index was marginally up at 3,036.09 points yesterday.
Despite opposition from incumbent telco operators, the Infocomm Development Authority (IDA) of Singapore said that it will go ahead with plans to auction off three lots of radio frequencies within the 1,900 to 2,100 megahertz (MHz) range.
The auction documents were published on IDA’s website last Friday. IDA said it will accept minimum bids of $20 million for each radio frequency bandwidth at an auction set for Nov 15. Bidders will not be limited to the three existing telcos.
IDA had in 2001 issued four spectrums, of which three spectrums were snapped up by SingTel, StarHub and M1 for $100 million each, leaving one unclaimed band which IDA is now seeking to allot.
Responding to the news, DMG & Partners Securities reaffirmed its ‘neutral’ call on the telco sector yesterday on expectations that competition in the industry will intensify.
‘We question the rational of a fresh auction as the additional spectrum could otherwise be more equitably distributed among the existing operators to meet the rising 3G data uptake,’ the brokerage said in a note.
But independent telecoms consultant Soh Siow Meng noted that the prospect is slim for a fourth operator to enter the market given the high mobile penetration in Singapore.
There were seven million mobile subscriptions in Singapore as at June this year, translating to a penetration rate of 140.7 per cent, IDA data shows.
‘For a new player to invest in a new network and possibly get into a price war with the three existing mobile operators, I don’t think this is a feasible business for the new player,’ Mr Soh said.
James Sullivan, head of Asia Telecom Research at JPMorgan, also noted that Singapore’s high penetration and small market size make it more likely for the incumbents to use this as an opportunity to buy additional spectrum to shore up their wireless broadband capabilities.
In the meantime, rumours that SingTel is likely to bid for the UK’s Cable & Wireless Worldwide appeared to have been quashed after SingTel clarified in a meeting with analysts that it wants to focus on the Asia-Pacific region.
Citi analysts Arthur Pineda and Ravi Sarathy said that this indicated to them that ‘there is likely to be limited interest on the part of SingTel in acquiring C&W Worldwide, contrary to UK press reports’. The speculated move was, however, perceived positively by various research houses given C&W’s attractive growth and valuations.
CIMB maintained an ‘underperform’ call on SingTel yesterday with a target price of $3.09 in view of headwinds faced by its key units. DMG’s top pick for sector exposure is M1 with a ‘buy’ call, while it is keeping ‘neutral’ on SingTel and StarHub.
TELCOs – DBSV
3G spectrum sale as bargaining chip?
• Three lots of 3G spectrum on sale with three potential bidders.
• Theoretically a fourth operator can participate in the auction, practically no one should be interested.
• This could be a bargaining chip in the hands of SingTel.
• Prefer SingTel and M1 to StarHub.
Three lots of 3G spectrum on sale. The telecom regulator, IDA would be auctioning three lots of additional 3G spectrum in 1900-2100 MHz band , with reserve price of S$20m for each lot. Applicants wishing to secure the spectrum must submit offers by 4 October, with the auction starting on 15 November.
Theoretically a fourth operator can participate, practically, no one should be interested. We like to remind investors that new entrants in the broadband space, LGA and SuperInternet are retail service providers (RSPs), who do not own any infrastructure. 3G spectrum, on the other hand, is part of mobile infrastructure, which needs high upfront investments. RSPs are equivalent to mobile virtual network operators (MVNOs) who do not need additional spectrum, if cellular operators lease mobile infrastructure to them.
Bid price may exceed the reserve price if SingTel decides to bid for 2 lots. Incumbents wanted IDA to simply allocate one lot of 2x 5MHz to each operator. However, IDA disagreed and aims to secure higher price by allowing each operator to bid for up to two lots instead of just one lot. In the 2001 auction, each lot of 2x 15 MHz spectrum was allocated (without auction) to the 3 operators at S$100 million each. Recently, India recently concluded its own 3G auction that generated S$20 bn for the local government. While India is not a right comparison for Singapore, we believe 3G spectrum is worth more as data traffic is growing exponentially requiring more spectrum and capex. An aggressive SingTel may be willing to secure 2 lots of spectrum, spiking up the price. This could be a bargaining chip in the hands of SingTel with StarHub and M1 encroaching into SingTel’s traditional stronghold of SME and corporate broadband. StarHub and M1 could be impacted if bid price is higher than S$20m, especially StarHub with higher dividend commitments..
Prefer SingTel and M1 to StarHub. We prefer SingTel for an improving Bharti (1Q11 was the bottom for Bharti) and attractive valuations of 12.1x FY11F PER at over 10% discount to its historical average of 13.4x. We like M1 for its sustainable 6.5% dividend yield and as key beneficiary of National Broadband Network. For StarHub, we estimate that its group equity may turn negative in 2012F, if it continues with 20 cents DPS.
SingTel – CIMB
Eyeing Cable & Wireless?
Departure from emerging-market assets
Maintain Underperform. Citing bankers, the media has reported that SingTel is considering a bid for Cable & Wireless Worldwide, a global provider of corporate fixed voice and data services. The key surprise is that SingTel appears to be moving away from pursuing mobile assets in developing countries to fixed-line assets in developed markets, probably acknowledging the lack of suitable and sizeable targets. We are positive on this potential acquisition, given C&W’s strong 3-year earnings CAGR of 21% and attractive prospective P/Es of 10x and 8x. Also, SingTel can probably extract cost savings and exploit cross-selling potential between the two companies. C&W will give SingTel a global platform vs. its current regional one. C&W’s shareholding is fragmented, which makes a takeover less challenging, in our view. However, maintain UNDERPERFORM on SingTel with an unchanged SOP-based target price of S$3.09, in view of headwinds faced by its key units. No change to our earnings estimates.
The news
Reuters has reported that SingTel is considering a bid for C&W, citing the British newspaper, Independent. It said SingTel had contacted bankers in Asia and Europe to discuss the idea and is less than 10% of the way through the process. It cited a corporate adviser as saying that SingTel is in the early stages of its pursuit but a takeover attempt is possible.
C&W provides communication networks and services in the UK and globally. Its clients are large multinational companies, governments, carrier customers and resellers. It provides managed voice, data and IP-based services and applications across the UK, Asia Pacific, India, Middle East & Africa, Europe and North America.
Comments
A departure? The key surprise is that SingTel appears to be moving away from pursuing mobile assets in developing countries to fixed-line assets in developed markets. This news, if confirmed, is an acknowledgement of a lack of suitable and sizeable emerging-market telco assets that could make a significant difference to SingTel. With Bharti owning Zain Africa, which is present in large parts of the continent, we believe SingTel may be running out of emerging-market options.
Positive. We are positive on this possible acquisition given C&W’s attractive growth and valuations, and potential synergies. C&W boasts a 3-year earnings CAGR of 21%, based on Bloomberg consensus estimates. It trades at CY10 and CY11 core P/Es of 10x and 8x respectively, implying a PEG of only 0.5x. Consensus forecast for FY10 earnings is about ₤198m (S$410m) or 11% of SingTel’s core net profit.
Synergies. C&W’s operations are similar to SingTel’s IT & Engineering (spearheaded by subsidiaries NCS and SCS), corporate and carriage services. Acquiring C&W would provide SingTel with a global platform vs. its current regional business. We believe there should be cost-savings and cross-selling of services.
Fragmented shareholding and modest valuations. C&W’s shareholding is also fragmented, with the majority of its shares held by portfolio funds, which makes a takeover less challenging, in our view. We believe SingTel can easily fund the acquisition given C&W’s market capitalisation of ₤1.9bn (S$3.9bn or 11% of SingTel’s market cap) and SingTel’s cash of S$1.78bn as at Jun 10, and FCF of S$3bn p.a.
Valuation and recommendation
Maintain UNDERPERFORM on SingTel with an unchanged SOP-based target price of S$3.09, as this potential acquisition does not change our view on SingTel. We believe the stock will be depressed by margin pressure in Singapore, lackluster earnings at Bharti and potentially rising competition in Australia.
SingTel – CIMB
Eyeing Cable & Wireless?
Departure from emerging-market assets
Maintain Underperform. Citing bankers, the media has reported that SingTel is considering a bid for Cable & Wireless Worldwide, a global provider of corporate fixed voice and data services. The key surprise is that SingTel appears to be moving away from pursuing mobile assets in developing countries to fixed-line assets in developed markets, probably acknowledging the lack of suitable and sizeable targets. We are positive on this potential acquisition, given C&W’s strong 3-year earnings CAGR of 21% and attractive prospective P/Es of 10x and 8x. Also, SingTel can probably extract cost savings and exploit cross-selling potential between the two companies. C&W will give SingTel a global platform vs. its current regional one. C&W’s shareholding is fragmented, which makes a takeover less challenging, in our view. However, maintain UNDERPERFORM on SingTel with an unchanged SOP-based target price of S$3.09, in view of headwinds faced by its key units. No change to our earnings estimates.
The news
Reuters has reported that SingTel is considering a bid for C&W, citing the British newspaper, Independent. It said SingTel had contacted bankers in Asia and Europe to discuss the idea and is less than 10% of the way through the process. It cited a corporate adviser as saying that SingTel is in the early stages of its pursuit but a takeover attempt is possible.
C&W provides communication networks and services in the UK and globally. Its clients are large multinational companies, governments, carrier customers and resellers. It provides managed voice, data and IP-based services and applications across the UK, Asia Pacific, India, Middle East & Africa, Europe and North America.
Comments
A departure? The key surprise is that SingTel appears to be moving away from pursuing mobile assets in developing countries to fixed-line assets in developed markets. This news, if confirmed, is an acknowledgement of a lack of suitable and sizeable emerging-market telco assets that could make a significant difference to SingTel. With Bharti owning Zain Africa, which is present in large parts of the continent, we believe SingTel may be running out of emerging-market options.
Positive. We are positive on this possible acquisition given C&W’s attractive growth and valuations, and potential synergies. C&W boasts a 3-year earnings CAGR of 21%, based on Bloomberg consensus estimates. It trades at CY10 and CY11 core P/Es of 10x and 8x respectively, implying a PEG of only 0.5x. Consensus forecast for FY10 earnings is about ₤198m (S$410m) or 11% of SingTel’s core net profit.
Synergies. C&W’s operations are similar to SingTel’s IT & Engineering (spearheaded by subsidiaries NCS and SCS), corporate and carriage services. Acquiring C&W would provide SingTel with a global platform vs. its current regional business. We believe there should be cost-savings and cross-selling of services.
Fragmented shareholding and modest valuations. C&W’s shareholding is also fragmented, with the majority of its shares held by portfolio funds, which makes a takeover less challenging, in our view. We believe SingTel can easily fund the acquisition given C&W’s market capitalisation of ₤1.9bn (S$3.9bn or 11% of SingTel’s market cap) and SingTel’s cash of S$1.78bn as at Jun 10, and FCF of S$3bn p.a.
Valuation and recommendation
Maintain UNDERPERFORM on SingTel with an unchanged SOP-based target price of S$3.09, as this potential acquisition does not change our view on SingTel. We believe the stock will be depressed by margin pressure in Singapore, lackluster earnings at Bharti and potentially rising competition in Australia.