Author: kktan
SMRT – Maybank Kim Eng
Share price surged… avoid the hype
- Share price surged 18.5% to its highest since 10 Dec.
- While a favourable transition of its business model is likely, this surge is speculative in the absence of announcements by the regulators or operators.
- Maintain Sell with TP of SGD0.60, based on 14x average EPS for FY3/14-16.
SMRT’s share price surged…
SMRT’s share price surged by 18.5% to close at its highest in almost five months, stoking speculations of impending corporate developments. In response to this, the stock exchange’s surveillance department has issued a query to which SMRT has replied that they are not aware of any news that has caused the price surge.
… Avoid the hype; maintain SELL
In our view, there are two possible corporate developments:
1) Nationalisation of SMRT via a general offer. This allows SMRT to run as a non-profit organisation. However, we think this is unlikely as Singapore’s Transport Minister had previously argued against nationalisation on ground that nationalisation may lead to higher fares and become a burden on taxpayers.
2) Favourable transition to new business model for fare-based business. This is a more likely scenario. SMRT’s core fare-based business suffered an operating loss of SGD32m in 2013 and is expected to remain a key drag to profitability in the future. While a change is imminent, it is highly speculative to conclude that the terms will be favourable to shareholders. In particular, we are concerned over the treatment of the asset purchase obligations under the old rail financing regime (note). In the absence of material announcements, we advise investors to stay cautious. SMRT trades at a rich valuation of 30x FY3/15E P/E. Maintain SELL with TP of SGD0.60.
Starhub – DBSV
Big boost from 4G price hike
- Premium price for 4G service to benefit FY14F/15F earnings by 2%/6%
- Corporate fixed line growth to offset weaker broadband & prepaid mobile
- Upgrade to BUY with revised DCF-based (WACC 6.5%, terminal 0%) TP of S$4.50, implying potential returns of 16%
If 4G prices were to rise to S$10.70, FY15F earnings
could increase by 30%. StarHub will start charging S$2.14 for its 4G service from June 2014 onwards versus its current promotional free offer. The company may further raise the extra charge for 4G to S$10.70 at a later unspecified date. Meanwhile, M1 offers free 4G services till Dec 2014 with regular price for 4G advertised as S$10.70. Elsewhere, SingTel has yet to indicate any intent of following suit. We like to point out that StarHub charges S$8.56 per GB for excess data usage versus S$10.70 by both SingTel & M1. Additionally, StarHub offers extra data-allowance of 1GB than peers on mid- to high-end plans. Even if peers do not follow its premium pricing, we believe StarHub’s 4G plans remain competitive.
StarHub to benefit most from subsidies for SMEs. The government will subsidise SMEs by S$500m over 2014-17 for fibre broadband connections of over 100Mbps. We estimate that Corp. fixed line (~17% of service rev) may grow by single digits to offset the weakness in prepaid mobile (~10% of service rev) and fixed broadband segments (~10% of service rev). Corp fixed line reaps highest EBITDA margins, which we estimate to be 36% versus 20% for pay TV & broadband, and 35% for mobile.
Committed to a fixed 5-Sct DPS each quarter, This translates into a payout ratio of 88%. With FY14F net debtto-EBITDA of 0.5x versus 0.7x for M1 and 0.9x for SingTel, one should expect dividends to rise in FY15F.
Starhub – DBSV
Big boost from 4G price hike
- Premium price for 4G service to benefit FY14F/15F earnings by 2%/6%
- Corporate fixed line growth to offset weaker broadband & prepaid mobile
- Upgrade to BUY with revised DCF-based (WACC 6.5%, terminal 0%) TP of S$4.50, implying potential returns of 16%
If 4G prices were to rise to S$10.70, FY15F earnings
could increase by 30%. StarHub will start charging S$2.14 for its 4G service from June 2014 onwards versus its current promotional free offer. The company may further raise the extra charge for 4G to S$10.70 at a later unspecified date. Meanwhile, M1 offers free 4G services till Dec 2014 with regular price for 4G advertised as S$10.70. Elsewhere, SingTel has yet to indicate any intent of following suit. We like to point out that StarHub charges S$8.56 per GB for excess data usage versus S$10.70 by both SingTel & M1. Additionally, StarHub offers extra data-allowance of 1GB than peers on mid- to high-end plans. Even if peers do not follow its premium pricing, we believe StarHub’s 4G plans remain competitive.
StarHub to benefit most from subsidies for SMEs. The government will subsidise SMEs by S$500m over 2014-17 for fibre broadband connections of over 100Mbps. We estimate that Corp. fixed line (~17% of service rev) may grow by single digits to offset the weakness in prepaid mobile (~10% of service rev) and fixed broadband segments (~10% of service rev). Corp fixed line reaps highest EBITDA margins, which we estimate to be 36% versus 20% for pay TV & broadband, and 35% for mobile.
Committed to a fixed 5-Sct DPS each quarter, This translates into a payout ratio of 88%. With FY14F net debtto-EBITDA of 0.5x versus 0.7x for M1 and 0.9x for SingTel, one should expect dividends to rise in FY15F.
SPH – DBSV
Hit by one-off payments
- 2Q14 results were below expectations, hit by lower ad revenues and higher staff bonus payments
- Declared 7 Scts interim DPS, similar to 1H13
- Revised FY14F/15F earnings by +4%/-12%; cut TP to S$4.14, downgrade to HOLD on muted outlook
Results miss expectations. This was on the back of lower revenues and higher staff costs. Headline net profit grew 8% y-o-y to S$81.3m but this was helped by S$52.9m one-off gain from the sale of partial stake in the regional online classified business. Excluding this, net profit was only S$28.4m largely due to higher staff costs (+$17.8m), a one-off impairment charge for the removal of a press line (S$9.9m), and impairment charge for investments (S$6m). On the positive side, SPH declared 7 Scts interim DPS, similar to 1H13.
Newspaper ad revenue remained weak. Group revenue dipped 1.2% to S$278.8m due to weaker contribution from newspaper and magazines (-5.7%), partly offset by higher property contribution (+3%) and ‘Other’ segment. Newspaper ad revenue fell 7% y-o-y following a 7% and 7.9% drop in display and classifieds ads, respectively, on weaker contribution from property and auto segments.
Higher staff costs (+18%) a surprise. Staff costs surged 18% y-o-y to S$101.1m in the quarter because of a one-off special bonus payments for prior year (S$10.4m) arising from REIT profits and revised bonus computation as incentive to drive growth. We expect the bonus payments to largely negate cost savings initiatives that are projected to reap S$19m in annual savings.
Downgrade to HOLD; cut TP to S$4.14. We revised FY14F/15F earnings by +4%/-12% after factoring in weaker than-expected ad revenues and higher costs, and the S$52.9m extra gain in FY14F. This reduced our sum-of-parts TP to S$4.14. The Group’s core ad revenues will remain muted, which suggest limited earnings upside. But the share price is supported by a strong balance sheet with S$1.7bn cash and investments and 5.2% yield.
SPH – DBSV
Hit by one-off payments
- 2Q14 results were below expectations, hit by lower ad revenues and higher staff bonus payments
- Declared 7 Scts interim DPS, similar to 1H13
- Revised FY14F/15F earnings by +4%/-12%; cut TP to S$4.14, downgrade to HOLD on muted outlook
Results miss expectations. This was on the back of lower revenues and higher staff costs. Headline net profit grew 8% y-o-y to S$81.3m but this was helped by S$52.9m one-off gain from the sale of partial stake in the regional online classified business. Excluding this, net profit was only S$28.4m largely due to higher staff costs (+$17.8m), a one-off impairment charge for the removal of a press line (S$9.9m), and impairment charge for investments (S$6m). On the positive side, SPH declared 7 Scts interim DPS, similar to 1H13.
Newspaper ad revenue remained weak. Group revenue dipped 1.2% to S$278.8m due to weaker contribution from newspaper and magazines (-5.7%), partly offset by higher property contribution (+3%) and ‘Other’ segment. Newspaper ad revenue fell 7% y-o-y following a 7% and 7.9% drop in display and classifieds ads, respectively, on weaker contribution from property and auto segments.
Higher staff costs (+18%) a surprise. Staff costs surged 18% y-o-y to S$101.1m in the quarter because of a one-off special bonus payments for prior year (S$10.4m) arising from REIT profits and revised bonus computation as incentive to drive growth. We expect the bonus payments to largely negate cost savings initiatives that are projected to reap S$19m in annual savings.
Downgrade to HOLD; cut TP to S$4.14. We revised FY14F/15F earnings by +4%/-12% after factoring in weaker than-expected ad revenues and higher costs, and the S$52.9m extra gain in FY14F. This reduced our sum-of-parts TP to S$4.14. The Group’s core ad revenues will remain muted, which suggest limited earnings upside. But the share price is supported by a strong balance sheet with S$1.7bn cash and investments and 5.2% yield.