Author: kktan
SPH – CIMB
Below expectations
Declining ads, weak shopper sentiment and unsustainable dividends are just some of the reasons for why we are negative on SPH. Excluding a one-off divestment and property revaluation gain, FY14 core net profit was below at just 85% of our estimate and 89% of consensus. We keep our Reduce call, and cut FY15-16 EPS by 5-9% to account for higher-than-expected minority interests and share of losses in its associates and JVs. Our SOP-based target price falls slightly to S$4.03.
Earnings hit by associates, JVs and minority interests
FY14 revenue (-2.0% yoy) met our expectation, but core net profit (-24.2% yoy) came in at just 85% of our estimate. This was due to: 1) higher-than-expected minority interests as a result of the fair value gain on investment properties in SPH REIT and 2) larger share of losses in its associates and JVs as SPH made further investments in the loss-making 701 classifieds business in Indonesia and the Philippines to face tougher competition. Advertisement revenue continued on a steep decline (-7.4% yoy) as property and car ads continued to slip, but this was countered by strong contributions from other revenue (+56.7% yoy); especially exhibitions, radio and sgCarMart (acquired in Apr 13).
Asset recycling of Seletar Mall only in 4-6 years’ time
Seletar Mall is slated to open in Nov, with an expected occupancy of c.90% at launch. SPH has guided for rents to be around S$11/psf, in line with our initial estimates. Management expects to inject the mall into SPH REIT upon the stabilisation of rents after 1-2 cycles, likely in 4-6 years’ time (vs. two years for Clementi Mall). Given that Seletar Mall is located on a relatively new estate and tenants are finding it difficult to hire staff due to a labour shortage, we believe that it may be difficult for SPH to recognise a meaningful step-up in rents.
Dividends may not be sustainable
SPH declared a final and special dividend of 8 Scts and 6 Scts, respectively, bringing the total DPS to 21 Scts. The dividend payout ratio reached a new high of 107.8%, a level which we believe is unsustainable. Until SPH finds a new growth driver to counter its declining newspaper and loss-making classifieds businesses, we believe that dividends may be at risk. SPH has already deployed c.10% of its S$100m new media fund in an online bidding website, Smaato, and made a small investment in an overseas e-commerce platform. We believe that these investments are still at the initial stages and could take time to contribute meaningfully. We prefer exposure to yield plays through the REITs.
SingPost – Phillip
Catering for growth with new Regional eCommerce Logistics Hub
- Developing fully integrated eCommerce Logistics Hub in Singapore to cater to expanding ecommerce logistics business and rapid ecommerce market growth.
- Project is estimated to cost S$182 million and is expected to complete by end Jan 2016; development will be funded internally from Group’s cash holdings.
- We viewed the new hub development positively, indicating huge growth potential in SingPost’s ecommerce logistics business.
- Maintain TP at S$2.07; revised rating to Accumulate as share price moved closer to our TP since our initiation on 12 Sep-14.
What is the news?
SingPost has recently announced it will be developing a fully integrated regional eCommerce Logistics Hub to cater to its expanding ecommerce logistics business as well as to address global growth in ecommerce market. Located in Tampines LogisPark, the 553,000 sqf hub comprises 3-storey integrated centre, with fully automated parcel sorting facility and 2 warehousing floors, and an adjoining 8- storey office block to house SingPost’s local and regional logistics operations. The logistics hub and adjacent office building will be built on land leased from JTC corporation for 30 years. Construction of the new hub is expected to complete by end Jan 2016. The development cost for the new hub is estimated to cost S$182 million and will be funded internally from the Group’s cash holdings.
How do we view this?
SingPost has a net cash of S$210m (ex S$350m perpetual securities) as of end Jun- 14, giving an excess of S$28m after internal financing of the new logistics hub. With an estimated FY15F cash flow from operations (over S$200m) more than sufficient to meet both dividends to shareholders as well as distributions to perpetual securities holders, we think SingPost would unlikely be gearing up in the short run as it continues its ongoing S$100 investment in postal service and infrastructure enhancement. We view the new eCommerce Logistics Hub development positively, signalling significant growth potential in SingPost ecommerce business.
Investment Action
As the hub would only be ready in 2016, we do not foresee much impact on revenue and margins in the current and the next fiscal year. We make an adjustment on FY15F/16F capex and maintain our TP at S$2.07. While we continue to be positive on the growth prospects, valuation may seem a little stretched at current share price, with forward PE at ~26.5x (impacted by dilution effects on EPS from new share issuance to Alibaba). We revise our rating to Accumulate.
SingPost – Phillip
Catering for growth with new Regional eCommerce Logistics Hub
- Developing fully integrated eCommerce Logistics Hub in Singapore to cater to expanding ecommerce logistics business and rapid ecommerce market growth.
- Project is estimated to cost S$182 million and is expected to complete by end Jan 2016; development will be funded internally from Group’s cash holdings.
- We viewed the new hub development positively, indicating huge growth potential in SingPost’s ecommerce logistics business.
- Maintain TP at S$2.07; revised rating to Accumulate as share price moved closer to our TP since our initiation on 12 Sep-14.
What is the news?
SingPost has recently announced it will be developing a fully integrated regional eCommerce Logistics Hub to cater to its expanding ecommerce logistics business as well as to address global growth in ecommerce market. Located in Tampines LogisPark, the 553,000 sqf hub comprises 3-storey integrated centre, with fully automated parcel sorting facility and 2 warehousing floors, and an adjoining 8- storey office block to house SingPost’s local and regional logistics operations. The logistics hub and adjacent office building will be built on land leased from JTC corporation for 30 years. Construction of the new hub is expected to complete by end Jan 2016. The development cost for the new hub is estimated to cost S$182 million and will be funded internally from the Group’s cash holdings.
How do we view this?
SingPost has a net cash of S$210m (ex S$350m perpetual securities) as of end Jun- 14, giving an excess of S$28m after internal financing of the new logistics hub. With an estimated FY15F cash flow from operations (over S$200m) more than sufficient to meet both dividends to shareholders as well as distributions to perpetual securities holders, we think SingPost would unlikely be gearing up in the short run as it continues its ongoing S$100 investment in postal service and infrastructure enhancement. We view the new eCommerce Logistics Hub development positively, signalling significant growth potential in SingPost ecommerce business.
Investment Action
As the hub would only be ready in 2016, we do not foresee much impact on revenue and margins in the current and the next fiscal year. We make an adjustment on FY15F/16F capex and maintain our TP at S$2.07. While we continue to be positive on the growth prospects, valuation may seem a little stretched at current share price, with forward PE at ~26.5x (impacted by dilution effects on EPS from new share issuance to Alibaba). We revise our rating to Accumulate.
SGX – Phillip
Strong derivatives volume marred by record low SDAV
- Securities Daily Average Value (SDAV) hit a historical all-time low of S$0.97b for 1Q15, a decrease of 14% q-q and 27% y-y based on SGX figures. We are seeing yet another quarter of supressed trade volumes and we believe this will continue to stretch into a seasonally weak 2Q.
- Factoring in 1Q15’s lower SDAV, we trimmed our FY15 forecasted SDAV, leading us to revise our FY15 EPS downwards slightly.
- Derivatives business had a strong quarter with Derivatives Daily Average Volume (DDAV) growing 9.4% q-q to 0.45 million contracts and 7.7% y-y. This was led by exceptional volumes from the FTSE China A50 contracts which saw a 60.5% growth q-q and more than twice the volume y-y.
- In the long run, we are still encouraged by the structural changes being introduced, namely the MM and LP programmes and board lot size reduction, helping to stimulate growth in trade volumes and improving liquidity.
- Upgrade to “Accumulate” with revised TP of S$7.30, based on slightly revised EPS and PE multiple of 23X FY15 earnings
What is the news?
SGX Ltd will be announcing its 1Q15 results on 21 Oct 2014. Based on monthly statistics recently released by SGX, 1Q15’s SDAV declined 14% q-q to S$0.97 billion. DDAV grew in 1Q15, increasing 9.4% q-q to 0.45 million contracts.
How do we view this?
We expect Securities Revenue to decline as SDAV has dipped by 14% q-q but the impact should be cushioned by higher average clearing fees with the removal of capped trades (S$600). Derivatives Revenue should be stronger this quarter with the 9.4% q-q growth in DDAV. This was a record quarter for the FTSE China A50 Index Futures (+60.5%) which was the main driver for overall volume expansion. The A50 contracts now constitute 41% of total equity index futures volume as compared to 29% in the previous quarter. We also note that albeit the minimal impact on overall derivatives revenue, forex futures volume are gradually taking off, especially so for the INR/USD futures (5X q-q). With RMB forex futures coming in as well (20 Oct 14), it could be a sound compliment to RMB-denominated investment products. Listing revenue will be another positive this quarter given the stronger pipeline of IPOs (S$1.9b raised in 1Q15), which will help to alleviate the weaker securities revenue.
Depressed securities activity levels continue to pose as a near-term drag for SGX. A weak start to FY15 and an upcoming seasonally weaker 2Q has led us to trim our FY15 projected SDAV. The Derivatives business remains a bright spark and key growth driver in the medium to long term and we estimate derivatives revenue could overtake securities revenue this year. Key re-rating catalyst will be a sustained pick-up in market volumes from external macro drivers and the success of the SGX introduced measures for boosting liquidity, IPOs and take-off of new derivatives products launched.
Investment Actions?
We trim our FY15/FY16 EPS estimates slightly by 3%/5%. Dividend yield is currently attractive at 4.4%. Based on a multiple of 23X FY15 earnings, our target price is revised to S$7.30 and we upgrade our rating to “Accumulate”.
SingPost – OCBC
Capitalising on regional e-commerce logistics
- e-Commerce growth beyond Alibaba
- Seeking to be a main stakeholder in the value chain
- Raise growth rate assumptions
Developing a fully integrated eCommerce logistics hub in Singapore
Singapore Post (SingPost) announced last evening that it will be developing a fully integrated regional eCommerce logistics hub to cater to its expanding ecommerce logistics business and the fast-growing ecommerce market. The three storey hub in Tampines LogisPark will be the first of its kind in SE Asia, equipped with state-of-the-art technology. Scheduled to be fully operational in 2H16, the estimated development cost is S$182m, and includes lease of land, construction costs and equipment costs. This will be funded internally from cash.
Capitalising on online retail and logistics solutions
There is room for Singapore’s e-Commerce scene to grow, as the country’s e-commerce sale volume as compared to the total retail market size was remains relatively low. Singapore’s rising importance as a logistics hub is also highlighted by recent investments in warehouse and distribution facilities by DHL and Menlo Logistics. In addition, SingPost, being a postal operator, may be already sitting on a huge amount of data waiting to be monetized. The partnership between postal operators and e-retailers may thus extend beyond the posts’ role of enablers of e-Commerce to supporting the e-retailers to expand and grow by analyzing, translating and interpreting data.
Raising growth rate assumptions and fair value estimate
In our 3-stage DCF model, we have forecasted earnings growth of 7-9% for FY15-16, and 16-17% in FY17-18 as SingPost builds up its e-Commerce capabilities and reputation. However, we have also assumed higher working capital requirements and capital expenditure, resulting in a 5-7% growth in free cash flow to equity (FCFE). For FY19-FY23, we increase our FCFE growth rate assumption from 5% to 9%, which is justifiable given 1) the significant growth potential of e-Commerce
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sales in Singapore and the region, 2) the accompanying rise in logistics services that are required to support this growth 3) the likelihood of SingPost directing its huge cash pile to earnings-accretive investments in the next few years. With this, our fair value estimate rises from S$1.78 to S$2.09. Upgrade to BUY.