Author: kktan
Starhub – Maybank Kim Eng
Muted quarter with no surprises
- 1Q14 was rather muted but results were within expectations. Maintain BUY and TP of SGD4.98. Prefer M1.
- Service EBITDA margin was above full-year guidance of 32%, which StarHub maintained.
- Net debt/EBITDA ratio fell to fresh 0.4x low, pointing to capacity for higher dividends in future.
Muted 1Q14 but within expectations
It was a rather muted 1Q for StarHub. QoQ performance was steady with net profit of SGD84m, up 1%. On a YoY basis, lower NBN adoption grants and a higher tax provision led to an 8% drop in net profit. On the positive side, mobile revenue rose 1.3% YoY on better postpaid contributions, fixed network revenue rose 2.2% YoY on stronger corporate business and stabilised international roaming, and EBITDA margin of 32.6% was above full-year guidance of 32%. The negatives were lower broadband and pay TV revenue due to intense competition, but this was expected.
4G price hike blocked but inevitable ARPUs will rise
StarHub tried to raise 4G premiums in mid-April by SGD2.14 a month for all its tiered subscribers but this was blocked by the IDA, which ruled that existing subscribers should not be affected until their contracts expire. But new and recontracting subscribers will still be affected. As for M1 and SingTel, we think it is just a matter of time before they follow suit and postpaid ARPUs will inevitably rise. Even with the higher 4G premium, StarHub’s postpaid plans remain competitive. For every 100k new tiered subscribers on the higher premium, we estimate a 0.1% benefit to earnings.
Maintain BUY and TP of SGD4.98. Prefer M1
While 1Q14 did not contain any surprises, we believe positive trends such as falling handset subsidies, stabilising roaming revenue and rapid data monetisation will strengthen throughout the year. In addition, net debt/EBITDA ratio fell to a fresh low of 0.4x, which will improve StarHub’s capacity to increase dividends.
SIAEC – OCBC
Stable outlook
- FY14 results in-line
- Modest gain from regional airlines’ capacity growth
- Maintain HOLD
FY14 results within expectations
SIA Engineering Company’s (SIAEC) FY14 results were within expectations. FY14 revenue increased 2.7% to S$1.18b, forming 101.4% of our forecast. However, lower margins resulted in PATMI declining 1.6% to S$266m, making up 99.1% of our forecast. The S$44.0m increase in expenditure (+4.3%) came mainly from higher staff costs, sub-contracting and material costs.
This is partly compensated by associates’ and JVs’ share of profits increasing steadily by 8.3% to S$162.6m, representing 61% of the SIAEC’s net profit. The main contributors were the engine repair and overhaul centres which accounted for S$125.0m. A final ordinary and special dividend of 13 S-cents and 5 S-cents respectively were recommended, bringing full-year dividend to 25 S-cents.
Modest upside from high capacity growth in Asian airlines
Though Asian airlines are adding capacity aggressively, bulk of the capacity growth is in the low cost carrier (LCC) segment. According to CAPA, APAC LCCs aircraft order book is 2.4x of current fleet as of Dec-13. As LCCs typically use older aircraft models with minimal cabin works, there is less earnings from MRO per aircraft. The tight operating budgets of LCCs also mean they are more likely to choose other lower-cost sites nearby for MRO even if the turnaround time is higher. Hence, we see modest upside and think SIAEC’s outlook will continue to be stable.
Philippines’ third hangar to start operations in Jun-14
Management guided that the third hangar at Clark base (Philippines) is expected to come on-stream in Jun-14. With this new hangar, Clark base’s capacity is expected to double. As the two existing Clark base hangars are already fully utilised, we expect the third hangar to start contributing to earnings in 2HFY15.
Maintain HOLD
Incorporating the latest results, we maintain a HOLD rating on SIAEC but raise our FV slightly from S$4.77 to S$4.83 based on 19.0x FY15 EPS of 25.4 S-cents (previous: 25.1 S-cents). Assuming a 90% payout ratio (vs. three-year historical average of 93.5%), we expect FY15F dividend yield to be reasonably attractive at 4.7%.
SIAEC – OCBC
Stable outlook
- FY14 results in-line
- Modest gain from regional airlines’ capacity growth
- Maintain HOLD
FY14 results within expectations
SIA Engineering Company’s (SIAEC) FY14 results were within expectations. FY14 revenue increased 2.7% to S$1.18b, forming 101.4% of our forecast. However, lower margins resulted in PATMI declining 1.6% to S$266m, making up 99.1% of our forecast. The S$44.0m increase in expenditure (+4.3%) came mainly from higher staff costs, sub-contracting and material costs.
This is partly compensated by associates’ and JVs’ share of profits increasing steadily by 8.3% to S$162.6m, representing 61% of the SIAEC’s net profit. The main contributors were the engine repair and overhaul centres which accounted for S$125.0m. A final ordinary and special dividend of 13 S-cents and 5 S-cents respectively were recommended, bringing full-year dividend to 25 S-cents.
Modest upside from high capacity growth in Asian airlines
Though Asian airlines are adding capacity aggressively, bulk of the capacity growth is in the low cost carrier (LCC) segment. According to CAPA, APAC LCCs aircraft order book is 2.4x of current fleet as of Dec-13. As LCCs typically use older aircraft models with minimal cabin works, there is less earnings from MRO per aircraft. The tight operating budgets of LCCs also mean they are more likely to choose other lower-cost sites nearby for MRO even if the turnaround time is higher. Hence, we see modest upside and think SIAEC’s outlook will continue to be stable.
Philippines’ third hangar to start operations in Jun-14
Management guided that the third hangar at Clark base (Philippines) is expected to come on-stream in Jun-14. With this new hangar, Clark base’s capacity is expected to double. As the two existing Clark base hangars are already fully utilised, we expect the third hangar to start contributing to earnings in 2HFY15.
Maintain HOLD
Incorporating the latest results, we maintain a HOLD rating on SIAEC but raise our FV slightly from S$4.77 to S$4.83 based on 19.0x FY15 EPS of 25.4 S-cents (previous: 25.1 S-cents). Assuming a 90% payout ratio (vs. three-year historical average of 93.5%), we expect FY15F dividend yield to be reasonably attractive at 4.7%.
SIAEC – Maybank Kim Eng
Special dividend surprise
- 4QFY3/14 net profit of SGD65.2m (-1.1% YoY) is marginally below expectations on weak JV contributions.
- Special DPS of 5 SGD cts brings full-year payout to 25 SGD cts, up 14% YoY and translates to attractive 5.2% yield.
- FY3/15E-17E forecasts revised by -7%/-1%/+7% on delayed ramp-up in workload. Maintain BUY and TP of SGD5.75.
What’s New
SIA Engineering (SIAEC) reported 4QFY3/14 net profit of SGD65.2m (-1.1% YoY), marginally below our expectations. This was due to weak contributions from its Rolls-Royce JVs which we had anticipated (note), but the sharp magnitude of decline still took us by surprise. On a more positive note, full-year DPS payout rose 14% YoY to 25 SGD cts, including a special DPS of 5 SGD cts. This translates to a solid dividend yield of 5.2%, which compares favourably against its peers. Management expects group performance to remain stable in the year ahead.
What’s Our View
While weakness may persist for SIAEC’s Rolls-Royce JVs in the near term, we reiterate that longer-term trends remain positive as the global Trent engine fleet is expected to double over the next five years. Management is unfazed by the reduction in workload due to the improved reliability of Trent 700 engines, confident that maintenance work is merely delayed. The opening of its third hangar in the Philippines next month means contribution from the airframe maintenance business should improve in 2HFY3/15E. We tweak our FY3/15E/16E/17E EPS forecasts by -7%/-1%/+7%, mainly to reflect the delayed ramp-up in workload for its Trent engines. Our TP of SGD5.75 remains intact, based on a higher target multiple of 23x FY3/15E (previously 21x) to account for stronger EPS growth over a three-year horizon. As the best proxy to the structural air traffic growth in the region, SIAEC is our preferred exposure in the Singapore Transportation space. BUY reiterated.
SIAEC – Maybank Kim Eng
Special dividend surprise
- 4QFY3/14 net profit of SGD65.2m (-1.1% YoY) is marginally below expectations on weak JV contributions.
- Special DPS of 5 SGD cts brings full-year payout to 25 SGD cts, up 14% YoY and translates to attractive 5.2% yield.
- FY3/15E-17E forecasts revised by -7%/-1%/+7% on delayed ramp-up in workload. Maintain BUY and TP of SGD5.75.
What’s New
SIA Engineering (SIAEC) reported 4QFY3/14 net profit of SGD65.2m (-1.1% YoY), marginally below our expectations. This was due to weak contributions from its Rolls-Royce JVs which we had anticipated (note), but the sharp magnitude of decline still took us by surprise. On a more positive note, full-year DPS payout rose 14% YoY to 25 SGD cts, including a special DPS of 5 SGD cts. This translates to a solid dividend yield of 5.2%, which compares favourably against its peers. Management expects group performance to remain stable in the year ahead.
What’s Our View
While weakness may persist for SIAEC’s Rolls-Royce JVs in the near term, we reiterate that longer-term trends remain positive as the global Trent engine fleet is expected to double over the next five years. Management is unfazed by the reduction in workload due to the improved reliability of Trent 700 engines, confident that maintenance work is merely delayed. The opening of its third hangar in the Philippines next month means contribution from the airframe maintenance business should improve in 2HFY3/15E. We tweak our FY3/15E/16E/17E EPS forecasts by -7%/-1%/+7%, mainly to reflect the delayed ramp-up in workload for its Trent engines. Our TP of SGD5.75 remains intact, based on a higher target multiple of 23x FY3/15E (previously 21x) to account for stronger EPS growth over a three-year horizon. As the best proxy to the structural air traffic growth in the region, SIAEC is our preferred exposure in the Singapore Transportation space. BUY reiterated.