Author: kktan
TELCOs – DBSV
iPad- lessons learnt from AT&T
• iPad’s microSIM is smaller than traditional SIM; New revenue stream for operators from iPad’s 3G-data plan.
• Potential could be 2-3% of revenue and 3-4% of earnings, plus for cellular players.
• M1 offers cheaper iPad plans with limited usage, a lesson learnt from AT&T. SingTel and StarHub offer premium plans with higher usage.
• We prefer SingTel & M1 to StarHub.
New revenue-stream for cellular players. iPad uses microSIM card, which is smaller than traditional SIM card. Arguably SIM card can be trimmed to a microSIM card but then it would become useless for smartphone ruling out interchangeability. As such, iPad owners would need to buy new 3G-data plan, which would be a new revenue stream for cellular players. We estimate 50K and 150K iPad households in 2010 and 2011, based on 5% and 15% household penetration rate in Singapore in 2010 & 2011 respectively. Assuming 80% of iPad users subscribe to 3G-data plan with average ARPU of S$25, we estimate iPad data revenue of S$18m in 2011F, about 2.5% of industry cellular revenue. With no device subsidy involved, we expect 70-80% of revenue to flow to the bottomline, contributing about 3-4% of cellular industry bottomline in 2011.
M1’s iPad plan targets light 3G-users, lesson learnt from AT&T. In terms of strategy, M1 seems to target light 3G-data users with cheaper plans, more appealing to the students. This is in contrast to SingTel and StarHub, who are targeting heavy-data users with premium plans. Plus there is no initial fee for M1 iPad plans in contrast to its competitors. This is also inline with AT&T’s experience where it stopped offering unlimited 3G-plans to its new iPad customers and offers maximum 2GB data limit (lower than M1’s 3GB) due to capacity constraints, most probably. AT&T realized that only 2% of people used more than 2GB, congesting the network for the rest 98%. In our view, iPad is like a notebook with more indoor (Wi-Fi) usage and consumers should be discouraged to use excessive 3G-data over Wi-Fi data. While M1 does offer unlimited data plan, we expect more traction for cheaper plans as consumers budget their iPad bills on top of smartphone bills. SingTel targets high-end users with 50GB of data limit while StarHub offers unlimited data under its iPad plans, which raises questions on the efficient use of 3G-network.
Pure cellular players should benefit more. We favor M1 as the chief beneficiary of iPad’s growth in Singapore. We continue to favor SingTel and M1 over StarHub. We like SingTel for strong Optus, recovering Bharti and attractive valuations. We like M1 for its ability to gain its market share, capital management potential and defensive 7% dividend yield. For StarHub, we are afraid that group equity may become negative, if it continues with 20 cents DPS till 2012
SingPost – DBSV
M&A could be the key catalyst
At a Glance
• Underlying net profit of S$37.3m (up 1% yoy) and quarterly DPS of 1.25 Scents were inline. Lower administrative costs offset the negatives.
• S$200m raised through note-issue in March, may be used for M&A to drive future earnings growth.
• To reflect growth potential through M&A, we switch to DDM based (Cost of equity 7.7%, growth rate 2%) TP of S$1.17.
Comment on Results
Lower administrative costs offset the negatives. Net underlying profit of S$37.3m (1% yoy, 2% qoq) was inline. We highlight that operating costs declined by 2% qoq despite 3% revenue growth qoq. This was achieved by bringing down administrative costs from S$18m in 4Q10 to S$14m in 1Q11, which also offset the impact of higher terminal dues and lower benefits from job credit scheme.
The key challenges for FY11F. (i) Adverse earnings impact (estimated S$3m) from higher terminal dues, although lower than initial estimate of over S$7m.(ii) S$5m reduction in job credit benefits in FY10F as the scheme expires in June 2010.
Potential M&A may drive growth. We like to remind investors that Singpost had issued S$200m 10-year note at fixed rate of 3.5% recently, which may be used towards regional acquisitions. Currently Singpost has invested about S$40m in higher yield financial instruments with average maturity of 2 years. In our view, Singpost is unlikely to deploy all of its funds for M&A in one shot. The company may utilize its funds in a gradual manner through a combination of financial instruments and M&A activity.
Recommendation
We do not see any risk to its dividends and recommend HOLD with DDM based revised TP of S$1.17.
SATS – DBSV
Expect stronger quarter ahead
At a Glance
• 1Q11 within expectations; net profit +10% yoy
• Lower EBIT (-7%) due to cessation of Jobs Credits mitigated by stellar 62% growth in JVs contribution
• Stronger quarters ahead on further pick up in activities (YOG, F1, airlines yields/load factor, etc)
• Maintain Buy, TP unchanged at S$3.13; potential upside to forecasts and TP from better-than-expected tourist arrivals and airline load factors
Comment on Results
1Q11 results within expectations. 1Q11 net profit was up by 10% yoy to S$44.3m, on the back of topline growth of 9% to S$382m. EBIT declined by 7% due to cessation of Jobs Credit (1Q10: S$6.1m). Excluding Jobs Credit, EBIT would have grown by c.8%. This was, fortunately, mitigated by a strong 62% growth in Associates/JV contribution to S$14.7m, largely by its Indonesia and Hong Kong operations.
UK reported strong 19% topline growth. Revenues grew from all segments with Gateway Services growing by 9.7% as aviation recovery continues to kick in with higher volumes. Notwithstanding the economic woes in UK, revenue grew by a strong 19% to S$81.3m, contributed by higher sales from Daniels’ juice and the “cut-fruit” categories.
Steady build up of cash to S$224m. Despite a delayed receipt of S$27m in receivables (which has since been collected), and final capex payments for its Coolport and Grimsby plants (S$16m), cash increased by S$29.1m from 4Q10.
Recommendation
Quarters ahead to show stronger growth. With Youth Olympic Games (YOG), F1, together with the ramp up at the Integrated Resorts, and pick up in yields/load factors for airlines, we should see better quarters ahead for SATS. 3QFY is also the traditionally strong quarter for Daniel’s in UK. Maintain Buy, TP unchanged at S$3.13. Potential upside to earnings and TP could lie in better-than expected tourist arrivals and yields/load factors of full cost airline carries, benefiting SATS’ aviation operations.
SATS – DBSV
Expect stronger quarter ahead
At a Glance
• 1Q11 within expectations; net profit +10% yoy
• Lower EBIT (-7%) due to cessation of Jobs Credits mitigated by stellar 62% growth in JVs contribution
• Stronger quarters ahead on further pick up in activities (YOG, F1, airlines yields/load factor, etc)
• Maintain Buy, TP unchanged at S$3.13; potential upside to forecasts and TP from better-than-expected tourist arrivals and airline load factors
Comment on Results
1Q11 results within expectations. 1Q11 net profit was up by 10% yoy to S$44.3m, on the back of topline growth of 9% to S$382m. EBIT declined by 7% due to cessation of Jobs Credit (1Q10: S$6.1m). Excluding Jobs Credit, EBIT would have grown by c.8%. This was, fortunately, mitigated by a strong 62% growth in Associates/JV contribution to S$14.7m, largely by its Indonesia and Hong Kong operations.
UK reported strong 19% topline growth. Revenues grew from all segments with Gateway Services growing by 9.7% as aviation recovery continues to kick in with higher volumes. Notwithstanding the economic woes in UK, revenue grew by a strong 19% to S$81.3m, contributed by higher sales from Daniels’ juice and the “cut-fruit” categories.
Steady build up of cash to S$224m. Despite a delayed receipt of S$27m in receivables (which has since been collected), and final capex payments for its Coolport and Grimsby plants (S$16m), cash increased by S$29.1m from 4Q10.
Recommendation
Quarters ahead to show stronger growth. With Youth Olympic Games (YOG), F1, together with the ramp up at the Integrated Resorts, and pick up in yields/load factors for airlines, we should see better quarters ahead for SATS. 3QFY is also the traditionally strong quarter for Daniel’s in UK. Maintain Buy, TP unchanged at S$3.13. Potential upside to earnings and TP could lie in better-than expected tourist arrivals and yields/load factors of full cost airline carries, benefiting SATS’ aviation operations.
SATS – OCBC
Strong execution in 1QFY11
1QFY11 results driven by broad-based growth. SATS Limited reported its 1QFY11 results last evening. Revenue came in at S$382.1m (+8.6% YoY, -2.2% QoQ), forming 24.1% of our FY11 sales forecast (22.9% of consensus), while PATMI reached S$44.3m (+9.7% YoY, -4.7% QoQ), representing 22.8% of full-year earnings estimate (21.6% of consensus). We note that the group enjoyed broad-based growth over the quarter, with aviation revenue (+9.1% YoY) driven by higher cargo throughput and passenger traffic, and non-aviation food business (+8.4% YoY) boosted by higher drinks and fruit sales from its UK operations. Better performances were also recorded by its ground handling associates in Hong Kong and Indonesia, leading to a strong 61.5% growth in contribution from overseas associates. As such, bottomline grew at a relatively faster pace than its topline, notwithstanding the absence of S$6.1m jobs credit benefit seen in 1QFY10. Excluding this benefit, we estimate that PATMI would have grown by 29.2% YoY (vs. 9.7% YoY growth as reported).
Positive outlook. Going forward, management expects its aviation business segment to improve further, in tandem with the economic recovery in Asia. Notably, passenger traffic is anticipated to grow in the coming quarters as full-service carriers continue to improve their yields and add more flights. In addition, cargo volumes are expected to grow, albeit at slower rate, mirroring the moderating economic growth projected in 2HCY10. Despite rising costs, SATS also added that its Singapore and UK food business are expected to remain stable in 2010.
Update on Coolport. On its perishable cargo handling centre, Coolport@Changi, management updated that the facility has commenced operations since 17 Jun and that the group is now in discussion with prospective customers for business opportunities in this area. Management currently expects Coolport to breakeven in 2-3 years. However, if it manages to secure big customers (where revenue is expected to be lumpy), the facility may break even as early as end-FY11.
Maintain BUY. We continue to like SATS for its growth opportunities, consistently strong operating cashflows and generous dividend payouts. We are revising our FY11 forecasts upwards by 2.1-2.7% as we incorporate the quarterly results into our full-year projections. This raises our DCF-based fair value to S$3.30 from S$3.27 previously. Despite the share price jumping by 16.5% since our last report on 10 Jun, we continue to see an attractive upside potential of 11.5% on SATS. As such, we maintain our BUY rating on the stock.