Author: kktan
M1 – BT
M1 lifts Q2 net profit 10% to $40.8m
Telco’s customer base, operating revenue up; declares higher dividend
THE second-quarter corporate earnings season got off to a good start yesterday, with M1 reporting that its Q2 net profit rose 10 per cent to $40.8 million from a year earlier, as operating revenue improved and its customer base grew.
The telco also raised its dividend slightly, signalling confidence in the business outlook for the rest of the year – a welcome start to the current Singapore corporate earnings season.
M1’s board declared an interim cash dividend of 6.3 cents a share, to be paid in August, up from 6.2 cents a year back.
Its earnings per share rose to 4.5 cents, from 4.1 cents a year earlier.
Compared with Q1, net profit was 3.7 per cent higher, mainly due to lower operating expenses, M1 said after trading ended yesterday. For the first six months of the year, net profit increased to $80.1 million, up 1.5 per cent from the same period last year – or 9.2 per cent if a tax credit adjustment that boosted earnings in the earlier period was excluded.
M1 chief executive Karen Kooi repeated the company’s guidance in April that it expects net profit for the full year to be higher than last year’s.
‘Based on the current outlook, net profit after tax for the year 2010 is likely to improve, compared to 2009,’ she said in a statement yesterday. M1’s share price ended 0.5 per cent higher at $2.16, before its earnings report.
M1 added 180,000 mobile-phone customers over the year, raising its user base 10.8 per cent to 1.849 million at end-June. Its market share at end-May – based on the latest industry statistics – was 26.2 per cent, up from 25.6 per cent at end-June last year.
Mobile services, which account for more than half of the telco’s operating revenue, rose 2.2 per cent over the year to $144.7 million in Q2. Sales to post-paid and pre-paid subscribers grew as M1 acquired more customers, but average revenue per user fell.
Handset sales rose sharply to $40.7 million in the three months to end-June, from $15.6 million a year earlier. Overall, operating revenue for the quarter rose 17.1 per cent year on year to $223.1 million.
M1 is preparing to take full advantage of the commercial opportunities presented by the new nationwide all-fibre network scheduled for launch later this year that will ‘change the current competitive landscape for fixed services’, Ms Kooi said.
Fixed-line services make up just a fraction of M1’s revenue at present – $6.1 million of the company’s $223.1 million in operating revenue in Q2 – but that contribution is likely to rise with the commercial launch of new fibre-optic broadband highway.
This will allow M1 – the smallest of Singapore’s three telcos – to offer fixed-line broadband services to compete with rivals SingTel and StarHub.
SingTel – DBSV
Key takeaways from Bharti’s conference call on Zain
• Bharti highlighted warm responses from African governments and regulators. This may signal potential for interconnection rate cut in Africa.
• SingTel’s FY11F/12F/13F earnings would be raised by 1%/2%/3% if Bharti can improve Zain’s margins.
• SingTel is our top sector pick, for strong Optus & renewed Bharti, not reflected in its 12.3x PER (Hist avg. 13.4x) compared to STI FY10F PER of 13.9x.
Takeaways on regulations and strategy in Africa. Bharti acknowledged that interconnection rates were too high in Africa and could be lowered substantially based on interconnection costs incurred by most efficient operators. Bharti believes that new licenses are unlikely to be issued due to lack of cellular spectrum in Africa. Management plans to kick-start infrastructure sharing to lower the capex while expanding coverage in rural areas. Bharti sees huge opportunity in lower minutes of usage of 60 min/subscriber (Indian average is 450 minutes). Management also clarified that annual interest cost on Zain’s related debt is around US$200m, which can be serviced from Zain’s free cash flow. Bharti guided for annual capex of about US$800m, slightly lower than our US$1bn expectations.
Key challenge is to improve EBITDA margins in our view. Bharti intends to grow Zain’s subscriber base to 100m, revenue to US$5bn and EBITDA to US$2bn by FY13F. This translates to subscriber CAGR of 33%, revenue CAGR of 11% and EBITDA CAGR of 18% over FY10-FY13F. We believe 11% revenue CAGR is comfortably achievable. However, the key challenge would be to improve EBITDA margins, especially with declining ARPU as Bharti penetrates into the rural regions. We have assumed EBITDA CAGR of 11% for Zain in our model. If Zain can achieve 18% EBITDA CAGR, it would raise SingTel’s FY11F/12F/13F earnings by 1%/2%/3%, adding 10 Scents to our TP for SingTel.
STEng – Phillip
Growing with resilience
Singapore Technologies Engineering Ltd (STE) is an established integrated engineering company with a strong position in defence and aerospace business. While maintaining a strong base in Asia, STE increased its exposure to global markets through organic growth and acquisitions over the years.
Strong dividend record. As the stock has a strong track record of high dividend payout, the dividend grew in line with the company growth at CAGR of 6.1% over the past 10 years. STE paid out all of its earnings for the year from 2003-2008. However, we believe that on the long run, maintaining a 100% payout ratio is not sustainable as the company needs to retain cash for further expansions.
Strategic partner of Singapore’s defence. STE has strong roots in Singapore’s defence ecosystem and its dominant position in the local defence industry enabled the company to anchor a base load of business.
Resilience of earnings. The four business segments of Aerospace, Marine, Electronics and Land systems provided diversity that enabled the company to stay profitable during the recent economic downturn.
Sustainable Growth. The top line of the company grew at a CAGR of 10.5%, while bottom line grew at a CAGR of 4.3% over the past 10 years. With the order book at an all time high of S$11.8bn (as of 31 March 10), we expect growth for the company to be sustainable.
Key drivers of growth:
• Being one of the largest MRO players in the world, recovery in aviation traffic would increase the flight hours clocked by aircrafts. With the increase in utilization, the demand for MRO services could rebound strongly.
• Increase in automation and networking requirement of infrastructures, such as railways, traffic, buildings and military systems would propel the growth of the electronics segment of the business.
• The Marine business in US has exhibited strong growth in recent years and we expect their growth to continue with the significant contracts won.
• Growth for the Land system segment would be fueled by contract wins with foreign militaries and commercial sales of specialty vehicles in emerging markets.
Key risks:
• Due to concerns over sovereign debt in Europe and US, scale back of Defence and Government expenditure could hinder global growth in the medium term, although we expect this to be mitigated by growth in Asia, to which revenues are skewed.
Valuation:
• We used a Free Cash Flow to Equity (FCFE) model (COE: 8.4%, Terminal growth rate: 3.5%) to arrive at a 12-monthly target price of S$3.64. After considering our projected dividend payout, total returns for the stock over the next 12 months would be 15.0%. We initiate with a BUY call.
SPAusNet – BT
SP AusNet aims to grow asset base
SP AUSNET will continue to focus on growing its regulated asset base, with the aim of being a stable and secure investment for security-holders.
Chairman of the electricity network operator in Australia, Ng Kee Choe, said at the company’s annual general meeting (AGM) yesterday that the group will aim to meet increasing customer demand and connections, as well as focus on expanding and commercialising its asset services business.
Mr Ng highlighted some emerging developments that are likely to have a positive effect on financial outcomes this year.
On June 4, 2010, new Australian tax legislation came into effect. This new tax law confirms the availability of additional tax deductions or carry forward losses available to SP AusNet, which enables the company to book a benefit of around A$10 million (S$12 million) this financial year.
In addition, SP AusNet has been able to utilise the Federal Government’s investment allowance incentive. The company expects that this will also yield a tax benefit this financial year.
SP AusNet is also starting to see the benefits of its enhanced reliability programme, with incentive payments being received under the AER’s S-Factor incentive scheme. These payments are received two years after the network’s reliability performance is assessed.
Apart from highlighting the positive financial effects, Mr Ng also highlighted certain events that caused uncertainty.
SP AusNet is involved in court proceedings in respect to two of the fires that occurred on Feb 7 last year in Beechworth and Kilmore East.
More than 600 victims of the firestorm sued SP Ausnet in Victoria’s Supreme Court, alleging that the fire was caused by the company’s failure to maintain its 43-year-old power line and install a safety device, known as a vibration dampener.
Mr Ng said the company continued to extend its full support and help to the 2009 Victorian Bushfires Royal Commission.
‘Many SP AusNet employees were involved in providing evidence to the commission. The commission is due to release its final recommendations at the end of this month,’ he said.
As the matters were before the courts, it was not appropriate to comment on them, Mr Ng said.
SP AusNet is 51 per cent owned by Singapore Power.
SPH – Lim and Tan
Strong Home Sales & Weak Euro
• The highlight of SPH’s Q3 performance (3 months to May ’10) is the strong rebound in print advertisement revenue and profit, reflecting the launch of:
– several property developments, as seen in strong home sales, especially in April when 2208 units were sold;
– European cars, because of the weak euro.
• Profit from Sky @ 11 continued to play a key role in SPH’s bottom-line, except that with TOP having been obtained, contributions have largely been recognized. As at end May ’10, revenue and profit came to $674 mln and $480 mln respectively.
• The value of Paragon may have risen, to $2.28 bln as at mid July, but upgrading spend will likely continue to rise, given the ever-intense competition along the Orchard road shopping belt.
• Clementi Mall, a 60–40 JV with NTUC Income / Fairprice, will commence operations in H1 2011.
• As at end May ’10, investible funds totaled $1.1 bln (up from $800 mln three months ago), spread among cash 26.2%; equities (23.6%), bonds (31.6%), and investment funds (18.6%). The biggest increase was the allocation to bonds, rising from 19.6% at end Feb ’10, reflecting a cautious stance by management.
• SPH’s main attraction remains its 6.3% yield, assuming unchanged 25 cents dividend per share for ye Aug ’10. (Interim was 7 cents per share.)
• Maintain BUY.