Author: kktan
SMRT – Lim and Tan
Unfortunate Punching Bag
• The Edge‘s timely “defense” of Saw Phaik Hwa (SMRT’s CEO) in its latest issue noted the following:
– The fare-setting Public Transport Council (PTC) has no representation from either SMRT or Comfort Delgro, which owns 75.25% of SBS Transit. Members come from the LTA, academia, labor unions, grassroots organizations, professional bodies and businesses.
– Fare hikes / adjustments are determined by a formula that takes into account inflation, national average earnings, less productivity gains.
– Operators may apply for fare hikes / adjustments once a year. (Between 2000 and 2007, there were 5 fare increases of a few cents each time. In 2008, a nominal 0.7% increase was granted, less than the 3% cap provided for; and in 2009, fares were actually reduced by 4.6% as the operators passed on savings from the 2009 Budget.)
– The recently implemented distance-fare scheme was an initiative of the LTA.
– The rail infrastructure was built and designed by the Land Transport Authority. The number of carriages, ie capacity of trains, would have been designed by LTA.
– The Downtown Line, due for completion from 2015, is “still” up for grabs. (*Yet, ask 100 train commuters, and 99 are likely to think SMRT is the sole operator of all MRT lines; North South, East West, North East and Circle Lines.)
– SMRT shares have returned 18.3% per annum since 2000.
• We have long maintained that the perennial question the authorities have to deal with is, is public transport a public service (offering subsidies is then entirely the government’s prerogative; fare hike may not be granted even if provided for by the formula) and then act accordingly: privatize SMRT and SBS Transit.
• The Edge noted that there are currently 10 “Hold” and 8 “Sell” recommendations by broking houses, with no one calling a “BUY”.
• We have however been calling a BUY, and are happy to keep it that way. Assuming 8.75 cents per share dividend for ye Mar’11, yield is a reasonably attractive 4.3%.
*All, except for North Ease Line operated by SMRT.
SingTel – GS
1Q11 Result Preview
Result Date:
• Thursday, 12 August 2010, approximately 9:30am (AEST).
GS&PA Estimates:
• N/a.
Trading Comment:
• SingTel’s key Associates will have reported their June quarter results by the time SingTel reports its 1Q11. Thus, the focus will be on the performance of SingTel’s Singapore and Australian businesses.
Look Out For:
• Singapore: At the FY10 result, SingTel gave subdued guidance for Singapore, with FY11 revenues expected to grow mid-single-digit and EBITDA expected to decline low-to-mid-single-digit. This is despite robust economic conditions (1Q10 GDP +25.1%, 4Q09 +11.0%, 3Q09 -4.6%, 2Q09 -12.4%, 1Q09 -15.5%). We expect to see: (1) robust WBB growth offset by slower mobile net adds; (2) a continued slowdown in fixed line; and (3) rising costs for SingTel’s new initiatives (e.g. mio TV). We may also get clarity on how SingTel expects its financials to look (margins, capex, etc.) in an NBN world.
• Australia: At the FY10 result, SingTel guided to mid-single-digit growth in sales and EBITDA in FY11. We expect to see broadly similar sales trends to previous results in 1Q11 – Mobile strong, Business and Wholesale flattish, Consumer and SME down. Our focus will be Optus Mobile (c. 70% of Optus EBITDA), specifically: (1) whether Optus Mobile has maintained its double-digit revenue growth momentum; (2) whether Telstra’s renewed vigour has had an impact on net adds; and (3) whether Optus Mobile has managed to drive earnings growth and margins.
• Associates: Following a robust recovery in FY10 (associates contribution +19.2% in FY10 cf. FY09 -21.6%) we expect growth in SingTel’s Associates earnings to slow in FY11. To date, both Telkomsel (NPAT -14.5%) and Globe (NPAT -27.5%) have reported weaker June quarter results. We also expect Bharti’s profit results (reports 11 Aug) to remain challenged given: (1) the impact of the price war; and (2) costs associated with the Zain acquisition.
Weakness in the underlying results is likely to be offset to some extent by the stronger Indonesian Rupiah.
SingTel – GS
1Q11 Result Preview
Result Date:
• Thursday, 12 August 2010, approximately 9:30am (AEST).
GS&PA Estimates:
• N/a.
Trading Comment:
• SingTel’s key Associates will have reported their June quarter results by the time SingTel reports its 1Q11. Thus, the focus will be on the performance of SingTel’s Singapore and Australian businesses.
Look Out For:
• Singapore: At the FY10 result, SingTel gave subdued guidance for Singapore, with FY11 revenues expected to grow mid-single-digit and EBITDA expected to decline low-to-mid-single-digit. This is despite robust economic conditions (1Q10 GDP +25.1%, 4Q09 +11.0%, 3Q09 -4.6%, 2Q09 -12.4%, 1Q09 -15.5%). We expect to see: (1) robust WBB growth offset by slower mobile net adds; (2) a continued slowdown in fixed line; and (3) rising costs for SingTel’s new initiatives (e.g. mio TV). We may also get clarity on how SingTel expects its financials to look (margins, capex, etc.) in an NBN world.
• Australia: At the FY10 result, SingTel guided to mid-single-digit growth in sales and EBITDA in FY11. We expect to see broadly similar sales trends to previous results in 1Q11 – Mobile strong, Business and Wholesale flattish, Consumer and SME down. Our focus will be Optus Mobile (c. 70% of Optus EBITDA), specifically: (1) whether Optus Mobile has maintained its double-digit revenue growth momentum; (2) whether Telstra’s renewed vigour has had an impact on net adds; and (3) whether Optus Mobile has managed to drive earnings growth and margins.
• Associates: Following a robust recovery in FY10 (associates contribution +19.2% in FY10 cf. FY09 -21.6%) we expect growth in SingTel’s Associates earnings to slow in FY11. To date, both Telkomsel (NPAT -14.5%) and Globe (NPAT -27.5%) have reported weaker June quarter results. We also expect Bharti’s profit results (reports 11 Aug) to remain challenged given: (1) the impact of the price war; and (2) costs associated with the Zain acquisition.
Weakness in the underlying results is likely to be offset to some extent by the stronger Indonesian Rupiah.
SingTel – Daiwa
1Q FY11 results preview: associates offset Optus’s strength
What has changed?
• Singapore Telecom (SingTel) is scheduled to announce its 1Q FY11 results on 12 August 2010. We expect the company to reaffirm its FY11 guidance.
Impact
• The numbers. We forecast 1Q FY11 net profit to decline by 1% YoY as we expect the contribution from associates to be a drag on the company’s overall profitability, despite likely positives including a strong performance by subsidiary Optus (Not listed) and favourable currency fluctuations.
• Optus expected to shine. We believe the solid mobile revenue-growth trend of the past few quarters is set to continue, and forecast the EBITDA margin to rise by 1.5 percentage points year-on-year for 1Q FY11.
• Singapore EBITDA expected to be flat. Despite our expectation of strong revenue growth, driven by mobile and IT divisions, we expect the EBITDA margin to fall due to a changing business mix and a likely increase in pay-TV costs.
• Looking for associates to remain a drag. We expect a 15% YoY decline in the pre-tax earnings of associates. We think this will be driven by margin erosion at Telkomsel (Not listed) as a result of a rise in network expenses.
Valuation
• We maintain our 3 (Hold) rating and sum-of-the-parts-based six-month target price of S$3.09.
Catalysts and action
• A rejuvenated Optus is a bright spot, but we are concerned about the outlook for the company’s associates, which accounted for 48% of SingTel’s FY10 EPS. Based on our estimates, the core (Singapore and Optus) business is trading at a market-implied valuation of S$1.64/share. This is a 10% premium to our S$1.44 fair-value estimate, and is unattractive in our view.
SingTel – Daiwa
1Q FY11 results preview: associates offset Optus’s strength
What has changed?
• Singapore Telecom (SingTel) is scheduled to announce its 1Q FY11 results on 12 August 2010. We expect the company to reaffirm its FY11 guidance.
Impact
• The numbers. We forecast 1Q FY11 net profit to decline by 1% YoY as we expect the contribution from associates to be a drag on the company’s overall profitability, despite likely positives including a strong performance by subsidiary Optus (Not listed) and favourable currency fluctuations.
• Optus expected to shine. We believe the solid mobile revenue-growth trend of the past few quarters is set to continue, and forecast the EBITDA margin to rise by 1.5 percentage points year-on-year for 1Q FY11.
• Singapore EBITDA expected to be flat. Despite our expectation of strong revenue growth, driven by mobile and IT divisions, we expect the EBITDA margin to fall due to a changing business mix and a likely increase in pay-TV costs.
• Looking for associates to remain a drag. We expect a 15% YoY decline in the pre-tax earnings of associates. We think this will be driven by margin erosion at Telkomsel (Not listed) as a result of a rise in network expenses.
Valuation
• We maintain our 3 (Hold) rating and sum-of-the-parts-based six-month target price of S$3.09.
Catalysts and action
• A rejuvenated Optus is a bright spot, but we are concerned about the outlook for the company’s associates, which accounted for 48% of SingTel’s FY10 EPS. Based on our estimates, the core (Singapore and Optus) business is trading at a market-implied valuation of S$1.64/share. This is a 10% premium to our S$1.44 fair-value estimate, and is unattractive in our view.