Author: kktan
ComfortDelgro – DBSV
Right on schedule
- 2Q14 in line; 1H forms 49.5% of our FY14F estimates, DPS of 3.75 Scts declared
- Expect stable growth to continue, aided by recent fare increases, ridership and acquisitions
- Share price trading at 1.5 std deviation above historical average
- Maintain HOLD, TP revised marginally to S$2.71
Highlights
2Q14 within expectations. 2Q14 net profit of S$75.7m was 9.9% up from a year ago, as revenue grew by 11.9% y-o-y to S$1.02bn, contributed by all business segments, notably buses (+S$80.3m) and taxis (+S$20m). Operating profit rose by 6.5% y-o-y to S$119.9m, a tad slower than topline due to higher operating expenses (+12.6% y-o-y) arising largely from higher staff costs (+17.3%), fuel & electricity (+25.6%) and premises costs (+26.9%). Operating margins slipped slightly to 11.8%, from 12.4% a year ago. An interim dividend of 3.75 Scts was declared (1H13: 3 Scts), equating to 57.6% payout ratio.
Our View
Stable growth to continue, though y-o-y rate in 2H could be a tad lower. Despite continued cost challenges, we expect management to continue delivering stable growth into 2H14 and FY15/16F, helped by recent fare increases and higher ridership in Singapore, and both organic and inorganic growth overseas. However, we currently expect 2H14 to see a slower y-o-y growth rate compared to that seen in 1H14 (+9.8%), due to a higher base in 2H13 (post-Metroline West acquisition in mid-2013) and lower contribution from Australia due to Sydney Metropolitan Bus Region 4 re-contract in August.
Acquisitions to continue; Blue Mountains Bus soon in the bag. CD recently announced that it had entered into an agreement to acquire Sydney-based Blue Mountain Bus Company for A$26.5m (S$30.8m), subject to regulatory approvals and due diligence. We were not surprised by this bite-sized purchase and view it positively as it will supplement the Group’s overall growth. We expect management to continue on this track to leverage on its strong balance sheet.
Recommendation
Maintain HOLD, TP S$2.71. We like CD for its diverse business and geographical exposure, and steady growth profile coupled with its opportunistic bite-sized acquisitions in areas which are familiar to management. However, we maintain our HOLD recommendation, given limited upside and with its valuation at 19x FY15F PE, which is c.1.5 std deviation above its historical mean. Our forecast is tweaked up marginally by 1.3% on lower minority interests, resulting in a revised TP of S$2.71. We will turn into buyers at c.S$2.40, which implies >10% upside to our TP.
Singtel – CIMB
Singapore blues, Optus bliss
SingTel’s 1QFY15 core net profit was below expectations, forming 22.1% of our full-year estimate (consensus: 23.0%). Associate earnings maintained its growth trajectory but came in lower vs. our forecast, largely due to the steep depreciation in the rupiah yoy. Elsewhere, Singapore came in weaker, dragged by higher cost, but this was offset by Optus, which surprised on the upside with better-than-expected margins. Management reaffirmed its guidance for FY15. We maintain our Add rating and SOP-based target price for now pending its results conference call later this morning. A likely re-rating catalyst is the continued turnaround in its earnings.
Singapore dragged by higher cost
Singapore’s results were below expectations. While revenue was 3.9% higher yoy, EBITDA fell 5.2% yoy. The margin slid 3.1% pts yoy to 32.0% due to lower enterprise earnings given more intense NBN competition and price reduction on contract transition for a large government project. There were also greater Digital Life losses and World Cup-related costs incurred in 1QFY15. While the enterprise business will remain under pressure, we expect Singapore earnings to start improving from FY16 onwards, boosted by data tariff adjustments.
Australia improves on lower cost
Optus’s results were above our expectations. Despite lower mobile termination rates, revenue fell only 2.8% yoy while EBITDA rose 4.4% yoy. The margin rose 200bp to 29.0% on lower subscriber acquisition cost (-13.6% yoy) and cost of sales. Operationally, the mobile subscriber base consolidated further by 0.3% qoq. We believe Optus will gain market traction in FY16 once its marketing initiative starts to pay off and its 4G-700MHz network goes ‘live’ in early 2015.
Associates to stay on growth track
Associate contributions improved, led by Bharti and Globe. However, it is tracking lower vs. our full-year forecast on weaker Telkomsel contributions caused by a steep 18.5% yoy depreciation in the rupiah. Nevertheless, associate currencies have stabilised and negative forex effects should abate in the coming quarters. Operationally, associates performed within expectations; Bharti was the star performer, with strong revenue growth and margin expansion.
Singpost – DBSV
Reap 3.5% yield till it takes off
- Net profit of S$39.2m (+5% y-o-y) was in line; excluding one-off gains, net profit would have been stable at S$36.2m. Interim dividend of 1.25 Scts was in line.
- Net profit was impacted by S$4m developmental costs for e-commerce and also a temporary increase in labour costs till sorting machine is upgraded by the end of 2014.
- Alibaba did not contribute much but discussions are underway as SPOST is hot on the heels of this opportunity
- BUY with S$2.00 TP based on DCF (WACC 6.3%, terminal growth 2%). Three key medium term catalysts are in place
Highlights
Group revenue was up 5% y-o-y, benefitting from ecommerce. Mail revenue grew 7% y-o-y on the back of growth in international mail and stable domestic mail from e-commerce volumes. Without e-commerce volumes, international mail would have hardly grown while domestic mail would have declined. Logistics grew 4% y-o-y despite restructuring at Quantium Solutions. Net profit was boosted by a one-off gain of ~S$3m from property sale. In discussions with Alibaba on international e-commerce logistics platform. SPOST wants to tap on e-commerce opportunities in Southeast Asia and beyond but is still negotiating with Alibaba on this front.
Our View
Upgrade of sorting machine at S$45m capex towards the end of 2014 should reduce costs. The machine will be able to sort more mails and packages and increase the throughput. However, during the transition, SPOST has hired 70 additional postmen.
Expect double-digit growth in e-commerce logistics. However, this should be partially offset by a 1-4% decline in the domestic mail segment. Given that e-commerce accounted for 26% of total revenue in FY14, one may expect a high single-digit to low double digit growth in group revenue.
Recommendation
SPOST should command a premium valuation for three reasons. Firstly, assuming that SPOST makes S$300m worth of acquisitions at 12-15x PE, it may add S$20-25m or 15-20% to our FY16F earnings. Secondly, SPOST is incurring ~S$15m developmental expenses each year in mainly hiring and training people, which could continue for another 2-3 years. We expect SPOST to register healthy growth beyond that. Thirdly, higher volumes from Alibaba could surprise in FY16F as we have assumed only ~S$50m worth of business from Alibaba in our forecasts. BUY for its 3.5% yield, while awaiting its price ascent.
Singpost – DBSV
Reap 3.5% yield till it takes off
- Net profit of S$39.2m (+5% y-o-y) was in line; excluding one-off gains, net profit would have been stable at S$36.2m. Interim dividend of 1.25 Scts was in line.
- Net profit was impacted by S$4m developmental costs for e-commerce and also a temporary increase in labour costs till sorting machine is upgraded by the end of 2014.
- Alibaba did not contribute much but discussions are underway as SPOST is hot on the heels of this opportunity
- BUY with S$2.00 TP based on DCF (WACC 6.3%, terminal growth 2%). Three key medium term catalysts are in place
Highlights
Group revenue was up 5% y-o-y, benefitting from ecommerce. Mail revenue grew 7% y-o-y on the back of growth in international mail and stable domestic mail from e-commerce volumes. Without e-commerce volumes, international mail would have hardly grown while domestic mail would have declined. Logistics grew 4% y-o-y despite restructuring at Quantium Solutions. Net profit was boosted by a one-off gain of ~S$3m from property sale. In discussions with Alibaba on international e-commerce logistics platform. SPOST wants to tap on e-commerce opportunities in Southeast Asia and beyond but is still negotiating with Alibaba on this front.
Our View
Upgrade of sorting machine at S$45m capex towards the end of 2014 should reduce costs. The machine will be able to sort more mails and packages and increase the throughput. However, during the transition, SPOST has hired 70 additional postmen.
Expect double-digit growth in e-commerce logistics. However, this should be partially offset by a 1-4% decline in the domestic mail segment. Given that e-commerce accounted for 26% of total revenue in FY14, one may expect a high single-digit to low double digit growth in group revenue.
Recommendation
SPOST should command a premium valuation for three reasons. Firstly, assuming that SPOST makes S$300m worth of acquisitions at 12-15x PE, it may add S$20-25m or 15-20% to our FY16F earnings. Secondly, SPOST is incurring ~S$15m developmental expenses each year in mainly hiring and training people, which could continue for another 2-3 years. We expect SPOST to register healthy growth beyond that. Thirdly, higher volumes from Alibaba could surprise in FY16F as we have assumed only ~S$50m worth of business from Alibaba in our forecasts. BUY for its 3.5% yield, while awaiting its price ascent.
Starhub – Maybank Kim Eng
Mobile star dimming
- 2Q14 results below, revenue guidance cut. Downgrade our least preferred telco to HOLD from BUY. TP cut to SGD4.44 (DCF, WACC 7.8%).
- Sharp slowdown in mobile revenue growth as fall in voice/SMS offset data growth.
- Broadband’s revenue free fall unlikely to end soon.
Below expectations
2Q14 profit fell 6% YoY as service revenue slipped 2% on lower prepaid mobile and broadband revenue, and lower NBN adoption grants. Of greater concern was the sharp slowdown in its postpaid mobile revenue growth to 0.8% YoY (vs M1’s +5.4%). We cut FY14E EPS by 4% to assume no YoY growth, as StarHub slashed guidance from low-single-digit growth to flat revenue. It maintained its EBITDA margin guidance of 32% (1H14: 33%) as it expects the new iPhone to depress 2H14 margins. Downgrade to HOLD with reduced DCF-derived TP of SGD4.44 (WACC 7.8%, LTG 1%).
Almost no growth in mobile revenue
While StarHub’s bundle-sharing SharePlus plans also diluted its postpaid ARPU to SGD68 (2Q13: SGD72), the main reason for its depressed mobile revenue appears to be sharply declining voice revenue (-12% YoY). This offset strong data monetisation (tiered subs +25 ppt YoY to 57%. In contrast, M1’s voice decline was less steep (-5% YoY) while its data monetisation rate was stronger (+32 ppt to 58%). OTT apps are hurting the whole industry but StarHub seems to be struggling more to stem the decline in its traditional revenue streams.
Broadband pain to be prolonged
2Q14 broadband revenue also fell sharply by 17% YoY as ARPU declined further to SGD37 (2Q13: SGD45). This is unlikely to end soon as StarHub intends to build up its subscriber base further as part of its home-hubbing strategy.