Author: kktan
SMRT – OCBC
3QFY15 results reinforces positive outlook
- Solid 3QFY15 performance
- Lower oil prices to help
- Raise FV; maintain BUY
Good showing from 3QFY15 results
SMRT continued its recovery momentum with a set of solid 3QFY15 results. Its 3QFY15 PATMI jumped 58.4% YoY to S$22.5m on the back of a 6.8% broad-based revenue growth to S$313.2m. 3QFY15 operating profit grew 54.4% YoY to S$31.0m. The fare business continues to show solid growth on higher ridership and average fares as well as lower diesel costs but these gains were partially offset by higher depreciation from a larger train fleet and mandatory contribution to the public transport fund. As for the non-fare business, it improved mainly on higher rental income as a result of higher rental renewal rates of commercial spaces but was partially offset by early retirement of taxis. The sustained strong performance for all three quarters led to a 56.0% YoY increase in its 9MFY15 PATMI to S$70.2m, which formed 76.5% of our slightly more conservative FY15 forecast.
Profitability to improve on lower diesel costs
Our view on SMRT’s outlook remains positive on several factors: 1) its ability to consistently manage expenses since 1QFY15 reflects the measures taken are likely sustainable, 2) management though tightlipped on hedging position, stated electricity costs will continue to decrease; we believe that their FY16 diesel needs are largely exposed and hence should see further reduction in costs as well, 3) management also stated full contribution of rental income from Kallang Wave Mall is likely to materialize only from FY16 onwards, and hence we change our assumption of full contribution from 2HFY15 to FY16 onwards, 4) the taxi segment is likely to see higher growth with newer fleet commanding higher rental income though early retirement of taxis eroded 3QFY15 EBIT by 48.0% YoY to S$0.8m, 5) LTA’s purchase of SMRT’s bus assets in order to switch to the new bus contracting model could potentially see lump sum cash inflow to SMRT, leading to a possible special dividend or acquisition for growth. However, with no details announced, we have yet to factor this into our model.
Raise FV; maintain BUY
Based on the above factors, we increase our FY15 and FY16 PATMI forecasts by 4.1% and 15.3%, respectively, as we believe lower energy costs will drive up profitability at least in FY16. Consequently, our DDM-derived FV increases from S$1.70 to S$1.90. Maintain BUY.
SMRT – OCBC
3QFY15 results reinforces positive outlook
- Solid 3QFY15 performance
- Lower oil prices to help
- Raise FV; maintain BUY
Good showing from 3QFY15 results
SMRT continued its recovery momentum with a set of solid 3QFY15 results. Its 3QFY15 PATMI jumped 58.4% YoY to S$22.5m on the back of a 6.8% broad-based revenue growth to S$313.2m. 3QFY15 operating profit grew 54.4% YoY to S$31.0m. The fare business continues to show solid growth on higher ridership and average fares as well as lower diesel costs but these gains were partially offset by higher depreciation from a larger train fleet and mandatory contribution to the public transport fund. As for the non-fare business, it improved mainly on higher rental income as a result of higher rental renewal rates of commercial spaces but was partially offset by early retirement of taxis. The sustained strong performance for all three quarters led to a 56.0% YoY increase in its 9MFY15 PATMI to S$70.2m, which formed 76.5% of our slightly more conservative FY15 forecast.
Profitability to improve on lower diesel costs
Our view on SMRT’s outlook remains positive on several factors: 1) its ability to consistently manage expenses since 1QFY15 reflects the measures taken are likely sustainable, 2) management though tightlipped on hedging position, stated electricity costs will continue to decrease; we believe that their FY16 diesel needs are largely exposed and hence should see further reduction in costs as well, 3) management also stated full contribution of rental income from Kallang Wave Mall is likely to materialize only from FY16 onwards, and hence we change our assumption of full contribution from 2HFY15 to FY16 onwards, 4) the taxi segment is likely to see higher growth with newer fleet commanding higher rental income though early retirement of taxis eroded 3QFY15 EBIT by 48.0% YoY to S$0.8m, 5) LTA’s purchase of SMRT’s bus assets in order to switch to the new bus contracting model could potentially see lump sum cash inflow to SMRT, leading to a possible special dividend or acquisition for growth. However, with no details announced, we have yet to factor this into our model.
Raise FV; maintain BUY
Based on the above factors, we increase our FY15 and FY16 PATMI forecasts by 4.1% and 15.3%, respectively, as we believe lower energy costs will drive up profitability at least in FY16. Consequently, our DDM-derived FV increases from S$1.70 to S$1.90. Maintain BUY.
M1 – OCBC
Better-than-expected 4Q14 showing
- FY14 NPAT beats forecast
- Keeps moderate earnings growth
- Fibre ARPUs likely bottoming
Better-than-expected 4Q14 showing
M1 Ltd reported its 4Q14 results last evening, where revenue jumped 24.3% YoY (also +38.4% QoQ) to S$346.4m, driven largely by the strong handset sales, as demand for the new Apple iPhone 6 and 6+ remained robust. However, net profit grew by a slower 9.8% YoY (down 0.1% QoQ) to S$44.5m, mainly due to higher operating expenses (acquisition cost rose 10.6% YoY, +18.7% QoQ) and higher taxes. Nevertheless, the better-than-expected set of results saw its FY14 revenue of S$1076.3m (+6.8%) exceed our estimate by 4.9% and net profit of S$175.8m (+9.7%) outpace our forecast by 6.2. M1 declared a final dividend of S$0.119/share, bringing its total payout this year to S$0.189/share, versus S$0.21 last year.
Keeps moderate earnings growth outlook
For FY15, management continues to believe that it can achieve moderate earnings growth (within the single-digit range), driven by the stronger data usage. M1 notes that smartphone users contributed 65% of total data traffic in 2014, up from 55% in 2013. The group also revealed that 66% of postpaid customers are on tiered data plans, where 22% exceeded their data bundles. M1 is also upbeat about its fixed services segment, where the take-up of higher speed fibre plans will be ARPU accretive in the residential segment; it believes it is also wellplaced to capture growth in the corporate segment with its product and service differentiation. And with its LTE-network upgrade almost done, M1 expects to spend around S$120m as capex, down from the S$139.6m spent in 2014.
Improving FV to S$3.66
Besides the better-than-expected 4Q14 numbers, we are also heartened by the recovery in the residential fibre ARPUs, suggesting that the extreme price competition is starting to become more rational; although the continued drop in prepaid subscribers is an area to watch. In line with the latest guidance, we revise our FY15 estimates up by 2-7%; our DCF-based fair value also improves from S$3.37 to S$3.66, mainly due to the drop in 10-year bond yields. Maintain HOLD.
SPH – OCBC
Headwinds for print continue
- 1QFY15 broadly within expectations
- Seletar Mall officially opened
- Lower fair value to S$3.85
1QFY15 results within expectations
Singapore Press Holdings’ 1QFY15 PATMI came in at S$69.4m, down 21.9% YoY, mostly due to reduced contributions from the core Newspaper and Magazine business whose performance was affected by continued headwinds in the print advertising market. That said, this was broadly within our expectations and 1QFY15 PATMI and total revenues now constitute 25.9% and 25.1% of our full year forecast, respectively. In terms of the topline, we saw 1QFY15 total revenues dip 6.5% YoY to S$310.6m, mainly as contributions from the Newspaper and Magazine segment fell S$20.2m. Advertisement and circulation components were down by S$16.0m and S$3.2m YoY, respectively. In addition, revenue from the group’s other businesses also dipped S$1.8m YoY due to the absence of contributions from key shows this year.
Ad segment continues downtrend
Over 1QFY15, the performance of the core print segment remained uninspiring as display and classified revenue fell 8.3% and 9.5%, respectively. Staff costs were kept mostly flat at S$92.8m, up 1.7% YoY, while the average headcount was also stagnant at 4,310 as at end Nov 14 (versus 4,322 a year ago). Newsprint prices continued to inch down to S$586/MT versus S$598/MT in 4QFY14, while average monthly consumption also fell to 7,847 MT.
Seletar Mall now fully leased
We saw a set of stable results from the group’s property segment. 1QFY15 property revenue increased 1.2% YoY to S$51.4m while Net Property Income also grew 1.8% to S$37.0m. The group’s new Seletar Mall officially opened in 28 Nov 2014 and is now fully leased. We value SPH using a sum-ofthe-parts methodology, and lower our PE multiple for the group’s print segment from 9x to 7.5x, to reflect weakening fundamentals in the sector. Our fair value estimate dips to S$3.85, from S$4.13 previously. Maintain HOLD.
SPH – CIMB
Ads continue to be a dampener
SPH reported 1QFY8/15 net profit of S$69.4m, in line with our estimate at 25% of our full-year forecast, but slightly short of consensus forecast (23%). Its core newspaper business continued to be hit by poor advertisement and circulation revenue, but the bright spot was lower newsprint cost. We revise our FY15-17 EPS estimates marginally to adjust for higher-than-expected share of losses from its investments in the regional online classifieds business. We keep our Reduce call and trim our SOP-based target price to S$4.00 to factor in a lower valuation of SPH REIT. While contributions from Seletar Mall will feature from 2Q15 onwards, we believe the positive impact will be muted by the accelerated fall in newspaper advertisements.
Newspaper segment impacted by falling ads
Revenue in the newspaper segment fell 7.9% yoy (advertisements -8.6% yoy, circulation -6.5% yoy). Advertisements, which contributed 59.6% to total revenue, continued to be adversely impacted by vehicle ownership and property cooling measures. The only bright spot was lower newsprint costs, but this was offset by higher staff headcount, which narrowed the newspaper segment’s PBT margin to 32.9% (1QFY14: 35.2%).
Seletar Mall to contribute in 2Q
Seletar Mall opened on 28 Nov 2014 with committed occupancy of 99.6%. We forecast that the new mall will boost the property segment’s revenue by 9.4% yoy in 9MFY15, based on S$11/psf rent. However, we expect the positive contributions in the property segment to be more than offset by declining advertisements, while its share of net losses from investments in the regional online classifieds business will continue to erode its net profit.
Maintain Reduce
As SPH’s core business continues on a structural decline, it increasingly has to rely on income from its non-core segments and investments in new media to make up for the loss in newspaper revenue. This appears to be a stretch, and we believe consensus has yet to factor in a faster pace of decline in newspaper contributions. That said, upside risks to our call could stem from meaningfully accretive acquisitions in the new media space, and more advertisements from property developers as property completions are expected to accelerate in 2015-16, based on URA data (Figure 4). Our base case assumes 2-4% annual decline in newspaper advertisement revenue in FY15-16, which is already below 1QFY15’s 8.6% yoy decline and the 7.4% yoy fall recorded in FY14.