Author: kktan
SATS – MayBank Kim Eng
Look Beyond The Near Term Headwinds
Weak set of numbers. SATS reported a fairly weak set of results with net income of SGD48.7m (-3.2% YoY, +5.4% QoQ). Revenue declined by 2%, largely due to lower contribution from TFK Corp. The core business continued to suffer from the impact of rising labour cost in Singapore. The saving grace was a 14% improvement in contribution from its associates in India and Indonesia. We trim our FY03/14-16 estimates by less than 2% to account for the lower-than-expected contribution from TFK Corp. and tweak our DCF-based TP to SGD4.00.
Lower inflight catering volume as expected. 2QFY03/14 unit meals produced in Singapore declined by 4.2% YoY as the inflight catering business was affected by the shifting of Qantas’ long-haul hub from Singapore to Dubai. While negative, this is already in our forecasts and is a well-cited fact.
Look beyond near-term headwinds at TFK. Meals volume in Japan was also lower (-4.5% YoY) due to continued tension between Japan and China. This coupled with the translational impact of weaker JPY against the SGD (-19% YoY) led to lower contribution by TFK. While facing near-term headwinds, the unit remained profitable and we expect growing contributions in the long term. The Japanese government aims to triple visitor arrivals to 30m by 2030 (2012: 8.4m) and we expect the aviation industry to be a natural beneficiary. Furthermore, Japan’s successful bid to host the Olympic Games in 2020 will provide a medium-term kicker.
Maintain BUY, TP: SGD4.00. We maintain our BUY rating on SATS as it is well positioned to benefit from Changi Airport’s ongoing expansion for growth. Furthermore, we believe investors should look beyond current poor performance. With the highly cash generative nature of its business, we see room for higher payout as it optimises its capital structure. The acquisition of Singapore Cruise Centre (SCC) will strategically position SATS as a direct proxy to the tourism growth story in Singapore.
SMRT – CIMB
Revenue-cost misalignment
Earnings were disappointing, no thanks to a nightmarish mix of higher opex and the lack of a fare hike. The only positives are that the risk of significant dividend cuts is lower now and management is proactive in growing its non-fare business domestically and overseas.
2QFY3/14 net profit was 34% short of our below-consensus estimate, with 1HFY14 making only 35% of our FY14 forecast. We reduce our FY14-15 forecasts by 6-30% to account for higher operating expenses. Maintain Underperform with a lower target price (DCF, WACC 6.5%) of S$1.06. De-rating catalysts are poor earnings from cost issues and the inability to navigate regulatory constraints.
Bottomline got hit again
Revenue rose 5.3% yoy, thanks to the strong ridership in Singapore. However, with relentlessly higher operating costs, 2QFY3/14 profit was dragged lower by 57% yoy. Costs escalated in several business segments. The large jump in costs was the result of a sharper rise in staff costs (+27% yoy), wage adjustment and higher headcount.
Higher opex but higher dividend payout ratio too
We increase all the key operating expenditure assumptions, although we think that staff costs should hover around this level for the rest of the year (c.40% of revenue). SMRT has proposed to pay an interim dividend of 1 Sct/share, a significant jump in payout ratio in this case. We believe the risk of further dividend cuts is now less of a concern given the more robust cash flow structure.
Revenue-cost misaligned
Fare adjustment remains a problem and revenue growth will still lag behind cost inflation. We believe that SMRT is making inroads with regulators regarding the accounting of asset transfers under the new rail-financing framework. Once this is resolved, the end result will be predictable cash flows and a more sustainable financing model, which will alter the fate of the company. Until then, the stock may continue to underperform.
SingPost – OCBC
Still delivering on rainy days
- No surprises in results
- Lower margins in tough environment
- Still a haven for yield seekers
2QFY14 results in line
Singapore Post (SingPost) reported a 32.6% YoY rise in revenue to S$203.8m and a 8.5% increase in net profit to S$35.6m in 2QFY14, such that 1HFY14 net profit accounted for 49.4% of our full year estimates. Excluding contributions from acquisitions, the group saw a 9.6% rise in revenue, on the back of growth in e-commerce related activities. Underlying net profit increased 13.8% to S$37.3m in the quarter, in line with our expectations.
Topline growth but even higher expenses
Labour-related, volume-related and admin expenses continued to rise on both a YoY and QoQ basis, mainly due to the change in the group’s business model to a more diversified one, as well as growth in the lower-margin businesses. EBITDA margin was lower at 26.6% in 2QFY14 compared to 31.1% in 2QFY13 and 28.5% in 1QFY14. Due to changing mail profile, high service expectations, keen competition and rising operating costs, the postal industry remains challenging. Meanwhile, cashflow generation remained strong, with net operating cashflow amounting to S$59.7m in the quarter vs. S$48.5m in 2QFY13.
Margins to be pressured in the medium term
We are seeing good topline growth with contributions from organic and inorganic initiatives, driven by e-commerce and regional growth via M&As. However, at the same time, the group is also experiencing the impact of developmental spending and investments. This is in addition to a rising cost environment and the fact that logistics, one of the key areas in which SingPost is growing, has a relatively lower margin compared to its mail business.
Haven for yield seekers
In line with its usual practice, the group has proposed an interim quarterly dividend of 1.25 S cents/share. Despite a challenging business environment, SingPost is still delivering a good ROE of about 43%. We also like its consistent dividends which are backed by stable operating cash flows, but see few re-rating catalysts for now. Meanwhile, the share price is likely to remain supported by investors seeking yield (~4.8% FY14F). Maintain HOLD with S$1.32 fair value estimate.
October 2013
Results Announcement
- 11 Oct 13 : SPH (FY13) – EPS 27ct ; Div 8ct (Final) + 7ct (Special)
- 14 Oct 13 : M1 (Q313) – EPS 4.3ct (todate 13ct)
- 30 Oct 13 : SingPost (Q214) – EPS 1.68ct (todate 3.454ct) ; Div 1.25ct (todate 2.5ct)
- 31 Oct 13 : SMRT (Q214) – EPS 0.9ct (todate 2.2ct) ; Div 1ct
- 5 Nov 13 : SATS (Q214)
- 7 Nov 13 : STEng (Q313)
- 7 Nov 13 : StarHub (Q313)
- 12 Nov 13 : SBSTransit (Q313)
- 13 Nov 13 : ComfortDelgro (Q313)
- 13 Nov 13 (AM) : MIIF (Q313)
STI = 3210.67 (-19.77)
|
Stock |
Period |
EPS cts |
DPS cts |
Mkt |
Yield |
PE |
Div Breakdown |
|
HL Fin |
FY12 (Dec) |
17.60 |
12.00 |
$2.630 |
4.563% |
14.94 |
Interim 4ct ; Final 8ct |
|
SingPost |
FY13 (Mar) |
6.435 |
6.25 |
$1.310 |
4.771% |
20.36 |
Q1, Q2, Q3 1.25ct ; Q4 2.5ct |
|
SPH |
FY13 (Aug) |
27 |
22.0 |
$4.250 |
5.176% |
15.74 |
Interim 7ct ; Final 8ct + Special 7ct |
Aviation Services
|
Stock |
Period |
EPS cts |
DPS cts |
Mkt |
Yield |
PE |
Div Breakdown |
|
SATS |
FY13 (Mar) |
16.60 |
15.0 |
$3.400 |
4.412% |
20.48 |
Interim 5ct ; Final 6ct + Special 4ct |
|
SIA Engg |
FY13 (Mar) |
24.51 |
22.0 |
$5.050 |
4.356% |
20.60 |
Interim 7ct ; Final 15ct |
|
ST Engg |
FY12 (Dec) |
18.76 |
16.8 |
$4.220 |
3.981% |
22.49 |
Interim 3ct ; Final 4ct + Special 9.8ct |
Note : SATS Special Div is Observed to be Non-Recurring
Transport
|
Stock |
Period |
EPS cts |
DPS cts |
Mkt |
Yield |
PE |
Div Breakdown |
|
SBSTransit |
FY12 (Dec) |
6.01 |
3.00 |
$1.285 |
2.335% |
21.38 |
Interim 1.35ct ; Final 1.65ct |
|
ComfortDelGro |
FY12 (Dec) |
11.89 |
6.40 |
$1.925 |
3.325% |
16.19 |
Interim 2.9ct ; Final 3.5ct |
|
SMRT |
FY13 (Mar) |
5.5 |
2.50 |
$1.300 |
1.923% |
23.64 |
Interim 1.5ct ; Final 1.0ct |
TELCO
|
Stock |
Period |
EPS cts |
DPS cts |
Mkt |
Yield |
PE |
Div Breakdown |
|
SingTel |
FY13 (Mar) |
22.02 |
16.8 |
$3.780 |
4.444% |
17.17 |
Interim 6.8ct ; Final 10ct |
|
M1 |
FY12 (Dec) |
16.1 |
14.6 |
$3.410 |
4.282% |
21.18 |
Interim 6.6ct ; Final 6.3ct + Special 1.7ct |
|
StarHub |
FY12 (Dec) |
20.93 |
20 |
$4.450 |
4.494% |
21.26 |
Q1 5ct ; Q2 5ct ; Q3 5ct ; Q4 5ct |
Funds / Infrastructure
|
Stock |
Period |
DPS cts |
Mkt |
Yield |
NAV |
Div Breakdown |
|
SPAus |
2H – Mar13 |
A4.1 (Gross) |
$1.460 |
6.612% |
A$0.91 |
1H13 A4.1ct ; 2H13 A4.1ct |
|
MIIF |
2H13 – Guidance |
0.80 |
$0.102 |
15.686% |
$0.250 |
1H12 2.75ct ; 2H12 2.75ct + 3ct (Special) ; Capital Return = 44.329ct + 1.04ct |
* SPAus DPU in A$. Yield is Calculated Using Latest Exchange Rate (1.1773) fm Yahoo
NOTES :
- Mkt Price is as on 31-Oct-13
- SingPost : Q214 (Sep13) – 1.25ct ; Q114 (Jun13) – 1.25ct
- SPH : 2H13 (Aug) – Final 8ct + Special 7ct ; 1H13 (Feb) – Interim 7ct
- MIIF : FY13 Guidance 2H13 (Dec) –0.8ct (Final) ; CXP Return of Capital = 9.7ct
- MIIF : 1H13 (Jun) –0.7ct
- ComfortDelgro : Q213 (Jun) –3ct
- ST Engg : 1H13 (Jun) – 3ct
- SBSTransit : Q213 (Jun) – 0.9ct
- HLFin : 1H13 (Jun) – 4ct
- StarHub : Q213 (Jun) – 5ct ; Q113 (Mar) – 5ct
- M1 : 1H13 (Jun) – Interim 6.8ct
- MIIF : FY13 Guidance 1H13 (Jun) –0.7ct ; 2H13 (Dec) – 1.2ct (Final) ; APTT IPO Entitlement / 1000 MIIF Shares (Estimate) = 457 APTT Shares or $443.29
- SPAus : 2H13 (Mar13) – A4.1ct = A1.367ct (Franked) + A2.649ct (Interest) + A0.084ct (Capital Returns) ; 1H13 (Sep12) – A4.1ct = A1.367ct (Franked) + A2.467ct (Interest) + A0.266ct (Capital Returns)
- SPAus : FY14 Guidance = A8.36ct
- SATSvcs : 2H13 (Mar13) – Final 6ct + Special 4ct ; 1H13 (Sep12) – Interim 5ct
- SingTel : 2H13 (Mar) – Final 10ct ; 1H13 (Sep12) – Interim 6.8ct ; Div Policy – 60% to 75% of Underlying Net Profit
- SIAEC : Q413 (Mar13) – Final 15ct ; Q213 (Sep12) – Interim 7ct
- SMRT : Q413 (Mar13) – Final 1.0ct ; Q213 (Sep12) – Interim 1.5ct
- StarHub : FY13 Div Guidance – 5ct/Q
M1 – CIMB
Roamers hanging up
At 94% of our forecast, M1’s annualised 9M13 core net profit was in line as we expect 4Q13 to be stronger qoq on lower subsidies.But M1 is a little ahead of consensus estimates at 98%. Data revenue was the key driver,but M1 was draggedby weaker roaming and IDD revenues.
We revise our FY14 DPS to 19 Scts to include a special DPS of 4 Scts and a final DPS of 8 Scts on the back of a net debt/EBITDA of only 0.5x. As such, we tweak our EPS estimates down. M1 remains an Outperform with a higher DCF-based target price after rolling a year forward. Likely price catalysts are a special dividend and earnings surprise.
Roaming is drowning
M1’s 3Q13 service revenue was flat qoq, despite a 6% rise in the adoption of tiered data plans to 32% (Figure 2). The growth in data revenue was diluted by: 1) lower roaming revenues due to lower inter-operator termination (IOT) rates and fewer travellers not using international data roaming by buying prepaid cards or using free WiFi at their travel destinations. We expect this phenomenon to continue because of expensive roaming rates, conveniently-available prepaid SIM cards in Singapore and most countries, and downward trend on the IOT. Roaming revenue contributes 12% of M1’s net revenues; and 2) weaker IDD revenues on lower tariff. As a result of these factors, service revenue slowed from 9% yoy in 2Q to 5% in 3Q (Figure 5). Device subsidies dipped 7% qoq despite the launch of the Samsung Galaxy S4 in mid-Jul. This reflects the lower selling price of this device.
iPhone 5S and 5C and 4Q
We expect EBITDA and EBITDA margin to rise qoq in 4Q on the back of the iPhone 5S/5C which were launched at end-Sep. Unlike the subsidy of other devices which are expensed, that of the iPhones are amortised over the term of their contract.
Capex
M1 expects 2014 capex to be similar to 2013’s S$130m on the back of projects spilling over from this year. This includes the expansion of its office space and upgrade of its billing system.