Author: kktan
SIAEC – CIMB
Emerging value
SIA Engineering (SIE) is likely to benefit from stronger regional travel, spurred by weak currencies. The share price has pulled back by 11% from its peak in May, making it more attractive. We upgrade our rating to Outperform from neutral.
We roll over our valuations to CY15 and upgrade our target price to S$5.20, still based on blended P/E and DCF. SIE is one of the top 10 non-REIT, high-yield Singaporean plays that are in a net cash position and has sustainable earnings growth prospects. We raise our EPS by 2% in FY16 based on higher growth in the line maintenance business. The catalysts are better-than-expected earnings and dividends.
Weak currencies boost regional travel
We expect SIE to benefit from the increase in regional air travel, which will continue on the back of weak currencies. Passenger movements between Singapore and Bali-Denpasar, Sydney, Tokyo (among Changi’s top 10 cities) registered double-digit increases in Jul 2013, in line with the weakened currencies of these countries.
Flights handled in Changi can only go up
The number of flights handled in Changi rose by an encouraging 7% yoy to 934 flights per day in Jul 2013 after a tepid average monthly increase of 5% yoy since Jun 2012. The Civil Aviation Authority of Singapore (CAAS) estimates that Changi Airport will have the capacity to handle up to 430,000 flights p.a. (1,178 flights per day) in 2018, based on 5% p.a. flight volume growth. This suggests that there is 26% upside from the existing base volume and that SIE’s line maintenance business can only go up. We marginally increase our line maintenance sales growth estimates in FY15-16 to 6% from 4%.
Attractive dividend yields
SIE’s net cash at end-1Q14 stood at S$622m, which is a level that could lead to special dividends, as in FY06 and FY11 when net cash exceeded S$500m. However, we have conservatively assumed 90% dividend payout ratio and net dividend yield of 5% in FY14. If there are no major M&As by end-FY14 and net cash still hovers above S$500m, we believe that SIE will maintain its good track record of rewarding shareholders via special dividends. The average dividend payout ratio in FY06 and FY11 was 130%, or c.S$0.33/share, resulting in a dividend yield of 7%.
ComfortDelgro – MayBank Kim Eng
More Opportunities To Grow Down Under
Successful re-tender of Region 4 in Australia. New South Wales (NSW) Minister for Transport recently announced the award of new metropolitan bus service contracts. ComfortDelGro’s Australia bus unit CDCBus again won the contract to operate Region 4, which comprises the Blacktown, Rouse Hill, Castle Hill, Dural and Parramatta regions. This effectively removes investors’ earlier fears that CDG could lose the service contract to this route, which constitutes one-third of its bus operations in Australia and involves around 500 buses.
Scope for privatisation of bus routes in NSW. Sydney Metropolitan’s bus network is made up of 15 contract regions and managed by different operators. Contract Regions 6-9 are operated by the State Transit Authority (STA) while the other regions are run by Private Bus Operators (PBO). Though the state-run operations account for only four of the 15 contract regions, they chalked up 76% of the passenger journeys clocked in FY12. With the majority of the bus transport services still managed by the state, we believe there is significant scope for privatisation of bus routes in the future. This would represent a major revenue opportunity for private operators such as CDCBus.
NSW public transport pie to continue growing. According to the NSW Long Term Transport Master Plan, Sydney’s population is expected to increase by 30% to 5.6m in 2031, which would drive daily trips made to 21.2m from 16.2m currently, a rise of 31%. With the proportion of commuters using public transport to get to work projected to increase by 3% in 2031, we expect the public transport market in NSW to continue growing. The NSW government has also stressed the importance of Sydney’s bus network to its public transport infrastructure and aims to increase bus services to satisfy the growing demand for bus travel. Hence, with expansion of the bus service market, we see room for CDG to increase its presence in the region.
Attractive valuations beckon, maintain BUY. Following the recent market correction, valuations for CDG are now below its historical average multiples of 16x PER. With acquisition-led growth driving firm earnings over the coming quarters, we expect the stock’s valuation to trade higher and keep our TP unchanged at SGD2.33, pegged at 18x FY14F PER. Maintain BUY.
ComfortDelgro – MayBank Kim Eng
More Opportunities To Grow Down Under
Successful re-tender of Region 4 in Australia. New South Wales (NSW) Minister for Transport recently announced the award of new metropolitan bus service contracts. ComfortDelGro’s Australia bus unit CDCBus again won the contract to operate Region 4, which comprises the Blacktown, Rouse Hill, Castle Hill, Dural and Parramatta regions. This effectively removes investors’ earlier fears that CDG could lose the service contract to this route, which constitutes one-third of its bus operations in Australia and involves around 500 buses.
Scope for privatisation of bus routes in NSW. Sydney Metropolitan’s bus network is made up of 15 contract regions and managed by different operators. Contract Regions 6-9 are operated by the State Transit Authority (STA) while the other regions are run by Private Bus Operators (PBO). Though the state-run operations account for only four of the 15 contract regions, they chalked up 76% of the passenger journeys clocked in FY12. With the majority of the bus transport services still managed by the state, we believe there is significant scope for privatisation of bus routes in the future. This would represent a major revenue opportunity for private operators such as CDCBus.
NSW public transport pie to continue growing. According to the NSW Long Term Transport Master Plan, Sydney’s population is expected to increase by 30% to 5.6m in 2031, which would drive daily trips made to 21.2m from 16.2m currently, a rise of 31%. With the proportion of commuters using public transport to get to work projected to increase by 3% in 2031, we expect the public transport market in NSW to continue growing. The NSW government has also stressed the importance of Sydney’s bus network to its public transport infrastructure and aims to increase bus services to satisfy the growing demand for bus travel. Hence, with expansion of the bus service market, we see room for CDG to increase its presence in the region.
Attractive valuations beckon, maintain BUY. Following the recent market correction, valuations for CDG are now below its historical average multiples of 16x PER. With acquisition-led growth driving firm earnings over the coming quarters, we expect the stock’s valuation to trade higher and keep our TP unchanged at SGD2.33, pegged at 18x FY14F PER. Maintain BUY.
SPH – OCBC
Continued headwinds for print
- REIT spin-off success
- Continued headwinds for print
- Downgrade to HOLD with S$4.14 FV
A REIT success but 18 S-cents bonus below view
As anticipated, SPH conducted a successful REIT spin-off for Paragon and Clementi Mall, yielding substantial cash proceeds and subsequently an 18 S-cents bonus dividend for shareholders. We see the establishment of a REIT subsidiary vehicle as a major positive for the group’s mall development business and believe management’s decision to hold a 70% majority stake makes significant sense – this enables accounting consolidation and for the bulk of property earnings to continue accreting to SPH. That said, the 18 S-cents bonus cash dividend was somewhat below view, particularly as the group was already sitting on an fairly hefty war-chest of ~S$0.9b investible funds as at end 3QFY13. We believe that investors could judge the degree in which management can expediently deploy excess capital for attractive returns as a key performance indicator for the group ahead.
Still seeing headwinds for the print business
In addition, the latest 3QFY13 figures presented a picture of continued headwinds for the group’s core print business. Over 3QFY13, operating revenue from the key Newspaper and Magazine segment fell 3.3% to S$259.3m. Given the cumulative impact from cooling measures and hawkish loan requirements on the property and automobile sectors, conditions for the print business remain challenging. We saw pressure on 3QFY13 ad revenues, which fell 4.5% YoY in 3QFY13, and circulation revenues also decreased S$4.9m YoY (down 3.2%) as the physical subscription base declined.
Downgrade to HOLD
Given current headwinds for the print business and limited visibility in terms of catalysts ahead, we believe the risk-reward proposition for the counter has turned fairly neutral. Downgrade to HOLD with a lowered fair value estimate of S$4.14, versus S$4.94 (before the REIT spin-off) previously. Our barometer for an upturn in outlook ahead consists of two key groups of operating metrics: for its print businesses – ad and circulation revenue growth; and for its retail property segment – expedient and accretive capital deployment.
SPH – OCBC
Continued headwinds for print
- REIT spin-off success
- Continued headwinds for print
- Downgrade to HOLD with S$4.14 FV
A REIT success but 18 S-cents bonus below view
As anticipated, SPH conducted a successful REIT spin-off for Paragon and Clementi Mall, yielding substantial cash proceeds and subsequently an 18 S-cents bonus dividend for shareholders. We see the establishment of a REIT subsidiary vehicle as a major positive for the group’s mall development business and believe management’s decision to hold a 70% majority stake makes significant sense – this enables accounting consolidation and for the bulk of property earnings to continue accreting to SPH. That said, the 18 S-cents bonus cash dividend was somewhat below view, particularly as the group was already sitting on an fairly hefty war-chest of ~S$0.9b investible funds as at end 3QFY13. We believe that investors could judge the degree in which management can expediently deploy excess capital for attractive returns as a key performance indicator for the group ahead.
Still seeing headwinds for the print business
In addition, the latest 3QFY13 figures presented a picture of continued headwinds for the group’s core print business. Over 3QFY13, operating revenue from the key Newspaper and Magazine segment fell 3.3% to S$259.3m. Given the cumulative impact from cooling measures and hawkish loan requirements on the property and automobile sectors, conditions for the print business remain challenging. We saw pressure on 3QFY13 ad revenues, which fell 4.5% YoY in 3QFY13, and circulation revenues also decreased S$4.9m YoY (down 3.2%) as the physical subscription base declined.
Downgrade to HOLD
Given current headwinds for the print business and limited visibility in terms of catalysts ahead, we believe the risk-reward proposition for the counter has turned fairly neutral. Downgrade to HOLD with a lowered fair value estimate of S$4.14, versus S$4.94 (before the REIT spin-off) previously. Our barometer for an upturn in outlook ahead consists of two key groups of operating metrics: for its print businesses – ad and circulation revenue growth; and for its retail property segment – expedient and accretive capital deployment.