Author: kktan
SingPost – CIMB
Post-dated potential
SingPost’s FY14 core net profit of S$145m met expectations at 100% of our forecast and 101% of the consensus number. Revenue growth was mainly driven by e-commerce and recent acquisitions, which helped to offset the decline in its traditional mail business. We maintain our Add rating, but trim our FY15-16 EPS forecasts to reflect higher costs. Our DCF-based target price rises to S$1.61 (WACC 7.3%) after rolling forward to FY15. Rising demand for low-cost e-commerce logistics solutions in Asia is a key catalyst. We also see upside potential from M&A activities as SingPost looks to expand its e-commerce logistics capabilities and network across the region.
Results highlights
4QFY14 revenue grew 5.9% yoy on the back of: 1) higher transhipment volumes, 2) growth in vPOST shipments, and 3) full recognition of contributions from Lock+Store and Famous Holdings, acquired in 4QFY13. Excluding the two acquisitions, organic revenue growth was 3% – slower than the run-rate of 6-9% in recent quarters due to seasonality and the sale of Clout Shoppe during the quarter. Core net profit declined marginally (-1.3% yoy) as a result of the higher restructuring and development costs (estimated S$15.5m, of which S$9m was for e-commerce and S$6.5m for the mail segment).
Ongoing e-commerce expansion
SingPost is showing promising signs of progress in the e-commerce space, with over 600 e-commerce customers now, double last year’s 300. SingPost is also rapidly expanding its overseas presence – Quantium Solutions (its primary vehicle for e-commerce logistics growth) recently set up a JV in Indonesia to provide warehousing and freight forwarding services, and Lock+Store will soon introduce its self-storage services in Malaysia. SingPost’s strong net cash position of S$170.3m (3QFY14: S$134.6m) leaves room for further acquisitions in the e-commerce logistics space, which can provide potential earnings uplift.
Maintain Add on post-transformation growth potential
SingPost declared a final DPS of 2.5 Scts, bringing total DPS to 6.25 Scts. This rewards investors with an attractive yield of 4.3% while waiting for earnings growth to come post-transformation. We think that SingPost is positioned to benefit from the rising demand for e-commerce logistics solutions in the region, given its low-cost advantage and full suite of services provided.
SingPost – OCBC
Still a good place to park your funds
- Healthy results
- Growth potential and good balance sheet
- 4.4% dividend yield
Healthy FY14 results
Singapore Post (SingPost) reported a 5.9% YoY rise in revenue to S$193.3m and a 17.7% increase in net profit to S$30.7m in 4QFY14, bringing full year net profit to S$143.1m, a 4.8% rise. Excluding one-offs, underlying net profit grew 2.9% to S$145.0m in FY14, 1.8% higher than our estimate. Full consolidation of new subsidiaries and growth in e-commerce related businesses offset declines in the traditional postal business; excluding contributions from acquisitions, SingPost recorded organic revenue growth of 3.0% in 4QFY14.
Growing surely and steadily
Revenue from the international mail segment increased 27% in FY14, contributed by strong growth in e-commerce package volumes. Though the group’s business transformation will still take time (and perhaps more acquisitions), its initiatives are starting to yield results. Backed by a strong balance sheet and stable operating cash flows from its core mail business, the group is able to enhance its logistics network and e-commerce capabilities to cater to the growing industry in the Asia Pacific region. In FY14, revenue from overseas accounted for 27.8% of total turnover (vs 19.1% in FY13), of which Logistics (mainly from the regional network of Quantium Solutions and freight forwarding business of Famous Holdings) made up 88.4% and Mail the remaining 11.6%.
Stock price may be supported as long as dividend yield remains decent
We switch our valuation to the free cash flows from equity method (cost of equity: 7%, terminal growth: 2%) to capture growth from the e-commerce business. As such, our fair value rises from S$1.32 to S$1.42. Besides positive growth prospects, SingPost’s stock has also been buoyed by investors seeking to park their funds in an environment awash with liquidity. Given its consistent dividend payout of 6.25 cents per year, we believe that investors may continue to seek refuge in the stock as long as the dividend yield remains decent. Indeed at current price, the forecast dividend yield is decent at 4.4%, and may be attractive to yield seekers. However, given the limited upside potential, maintain HOLD.
SingTel – CIMB
Putting the worst behind
Following SingTel’s FY3/14 results conference call, we think that growth will be driven by Singapore and its associates. Associate contribution should improve on stabilising currencies and improving fundamentals. Optus’s EBITDA should decline in FY15 due to its network gap with Telstra while Digital Life should continue to be earnings dilutive. As a result, we lower our FY15-17 EPS by 3-7% but raise our SOP-based target price by 5 Scts to S$4.10 on higher valuation for Globe and Bharti. SingTel remains an Add with continued earnings recovery as a potential catalyst.
What Happened
SingTel hosted a conference call following the release of its FY14 results. The main takeaways are: 1) It has no plans to raise prices for its 4G data service in Singapore for now; 2) Optus indicated it will continue to focus on 4G rollout, and on regional network rollout ahead of the receipt of 700MHz spectrum in Jan 2015; and 3) its new initiatives to drive Digital Life organically will dilute EBITDA in FY15. All this has been factored into its guidance.
What We Think
We expect SingTel Singapore‟s strategy of aggressively acquiring market share to continue. This strategy has yielded revenue growth, but it has come at the expense of short-term EBITDA margin. Having said that, EBITDA margin appears to have bottomed out in 3QFY14. The margin is also aided by lower device subsidies which is an industry phenomenon. We believe that there is further mobile subscriber and ARPU downside at Optus as it continues to narrow its network gap with Telstra. With its network rebuilding exercise and the use of 700MHz spectrum to expand regional coverage, we expect Optus to be on a stronger earnings path from FY16. Hence, we have lowered our FY15-17 EPS by 3-7%, largely to reflect lower revenue and EBITDA expectations for Optus. Despite this, we raise our SOP-based target price by 5 Scts to S$4.10 after factoring in a higher valuation for Bharti and Globe.
What You Should Do
We continue to like SingTel and retain its Add recommendation even after the stock has re-rated 7% since our upgrade in 13 Feb. The currencies of its key associates have stabilised (Figure 1) and the fundamentals of its associates are generally improving. A likely re-rating catalyst is the continued turnaround in its earnings. Key risks are competition in Australia from Telstra and Optus‟s execution of its network rollout.
SingTel – OSK DMG
Holding Out For a Clearer Line
We keep our NEUTRAL call on SingTel given the unexciting FY15 prospects and lack of strong price catalysts. Optus continues to engineer a difficult revenue recovery while earnings headwinds remain prevalent domestically. The sustained capex spending may mean special dividends taking a backseat. We lower FY15 earnings by 8% and introduce FY16 forecast. SOP-based TP is raised to SGD3.80 (from SGD3.55) after rolling forward to FY16.
Subdued year likely. Aside from the group-wide cost initiatives, which should provide some earnings uplift, we think FY15 could shape up to be another challenging year for SingTel as the recovery in Optus’ revenue is likely to be protracted (Optus constitutes 60% of group revenue). SingTel also faces competitive headwinds at home on broadband and pay-TV. The bright spots are its associates (growing dividends) and stabilising currencies. We do not rule out a special dividend, though this appears less likely with the higher capex planned for FY15.
Group Digital Life (GDL) losses have peaked. SingTel plans to continue seeking opportunities to grow its GDL business. We gather from management that the primary initiatives this year would be on video content distribution and data analytics. When replicated across its associates, the services allow the group to better monetise data. GDL EBITDA losses peaked in FY14, totaling SGD170m, and is expected to narrow by 20% in FY15.
Forecast and risks. We lower our FY15 forecast by 8% after moderating our revenue growth assumptions for its Singapore/Optus businesses and adjusting our forex assumptions. We introduce our core earnings forecast of SGD4.09bn for FY16. Key risks to our forecasts are: i) forex volatility, ii) stronger than expected competition in key markets, and iii) overly aggressive M&As.
SOP-based TP raised to SGD3.80. We roll our valuation to FY16 and update the latest market valuations of its listed overseas associates.
Investment case. SingTel remains a NEUTRAL due to the lack of fundamental re-rating catalysts. Our Top Pick for Singapore telco exposure is M1 (M1, BUY, FV: SGD3.65)
ComfortDelgro – OCBC
Off to a good start
- 1Q14 PATMI +9.7% YoY
- Stable margins
- Policy change a key catalyst
1Q14 results within expectations
ComfortDelGro (CDG) started FY14 on a bright note, registering a 9.2% YoY increase in its 1Q14 revenue to S$950.8m, while PATMI rose 9.7% to S$63.3m. This was within ours and the street’s expectations, with topline and bottomline forming 24.0% and 22.5% of our full-year forecasts, respectively. Broad-based revenue growth was achieved across most operating segments, with the exception of its Automotive Engineering Services and Car Rental & Leasing divisions. Despite cost pressures from higher staff expenses (+13.0% YoY) and fuel and electricity costs (+21.7% YoY), coupled with a net negative FX impact of S$0.5m on its profit before tax, CDG managed to keep its margins stable. Operating and net margin for 1Q14 came in at 10.7% and 6.7%, as compared to 11.0% and 6.6% in 1Q13, respectively.
Local conditions remain challenging
CDG’s Singapore operations remain challenging as expected, with its core Bus and Rail businesses running into operating losses of S$4.7m and S$1.0m (excluding rental and advertising income), respectively. The latter was impacted by start-up losses amounting to S$6.8m at DTL1. Average daily ridership has increased from 54k in 1Q14 to ~57k in Apr-May, but still short of LTA’s steady state ridership target of 75k. On the contrary, CDG’s overseas operations continued its robust growth, conjuring up a 13.2% and 10.0% YoY growth in revenue and operating profit to S$376.5m and S$51.6m, respectively.
Maintain BUY
Besides CDG’s Australia bus business which is expected to register a decline in revenue, management guided that its remaining business segments are expected to either maintain or increase their revenue ahead. Management also refused to divulge details on probable upcoming policy changes by the Singapore government, but hinted that more
details on the new bus operating model framework may be announced during the next Parliamentary session to be held on 16 May. Any measures which would enhance the sustainability of the transport sector would be a major catalyst to both CDG and SMRT. We retain our forecasts, BUY rating and fair value estimate of S$2.30 on CDG.