Author: kktan
SingTel – CIMB
Strong finish to FY13, but weak FCF in FY14
FY13 core was 4% above our forecast and 3% above consensus on surprises at Telkomsel, AIS and Globe. Optus slightly disappointed but Singapore was in line. SingTel guides for a 30% drop in FCF in FY14 (ex-associate dividends) on flat revenue and a 25% surge in capex.
It will be allocating S$2bn to investments in the digital business over the next three years. It declared a final DPS of 10cts for a total of 16.8 cts (74% payout) vs. 15.8 cts in FY12 (69%). We tweak our FY14-15 EPS and keep our SOP target price for now. SingTel remains an Underperform with de-rating catalysts expected from disappointing FC. M1 remains our top Singapore telco pick.
Australia and Singapore
Operationally, Optus’s 4Q was slightly below expectations with still-weak net adds and cost savings behind its EBITDA growth. Revenue fell 5% yoy, while EBITDA grew 3%. SingTel Singapore met our expectations, backed by market-share gains in mobile, fixed broadband and pay TV.
Associates saved the year
Telkomsel’s, AIS’s and Globe’s earnings surprised positively thanks to growth in subscribers and mobile data. AIS’s contributions were further bolstered by a 2% appreciation of the THB vs. S$ and lower corporate taxes starting Jan 13. Bharti was the main drag among its associates on higher depreciation/amortisation in Africa and an 11% depreciation of the Rs/S$.
Muted outlook
SingTel’s guidance paints to another muted year for Australia and Singapore (Figure 1). It expects FY14: 1) revenue to be flat after declining 3% yoy, with single-digit growth in Singapore offset by lower revenue for Optus from lower mobile interconnection rates; and 2) EBITDA to rise by low single digits on the back of efficiency gains. More importantly, FY14 free cash flow is expected to fall 30% yoy on the back of a 25% surge in capex as Australia and Singapore invest in LTE and 3G.
SingTel – CIMB
Strong finish to FY13, but weak FCF in FY14
FY13 core was 4% above our forecast and 3% above consensus on surprises at Telkomsel, AIS and Globe. Optus slightly disappointed but Singapore was in line. SingTel guides for a 30% drop in FCF in FY14 (ex-associate dividends) on flat revenue and a 25% surge in capex.
It will be allocating S$2bn to investments in the digital business over the next three years. It declared a final DPS of 10cts for a total of 16.8 cts (74% payout) vs. 15.8 cts in FY12 (69%). We tweak our FY14-15 EPS and keep our SOP target price for now. SingTel remains an Underperform with de-rating catalysts expected from disappointing FC. M1 remains our top Singapore telco pick.
Australia and Singapore
Operationally, Optus’s 4Q was slightly below expectations with still-weak net adds and cost savings behind its EBITDA growth. Revenue fell 5% yoy, while EBITDA grew 3%. SingTel Singapore met our expectations, backed by market-share gains in mobile, fixed broadband and pay TV.
Associates saved the year
Telkomsel’s, AIS’s and Globe’s earnings surprised positively thanks to growth in subscribers and mobile data. AIS’s contributions were further bolstered by a 2% appreciation of the THB vs. S$ and lower corporate taxes starting Jan 13. Bharti was the main drag among its associates on higher depreciation/amortisation in Africa and an 11% depreciation of the Rs/S$.
Muted outlook
SingTel’s guidance paints to another muted year for Australia and Singapore (Figure 1). It expects FY14: 1) revenue to be flat after declining 3% yoy, with single-digit growth in Singapore offset by lower revenue for Optus from lower mobile interconnection rates; and 2) EBITDA to rise by low single digits on the back of efficiency gains. More importantly, FY14 free cash flow is expected to fall 30% yoy on the back of a 25% surge in capex as Australia and Singapore invest in LTE and 3G.
SATS – CIMB
Cruise control
SATS wrapped up FY13 on a pleasant note, not only reporting stronger-than-expected profits but also dishing out higher-than-expected dividends.
FY13 core net profit surpassed Street and our expectations by 8% on the back of margin strength. We fine-tune our FY14-15 EPS by less than 1% and raise our target price (still at 16.8x CY14 P/E, 1SD above its 8-year mean) marginally. Maintain Outperform with re-rating catalysts to come from growth in Changi Airport’s passenger traffic.
Leveraging Changi Airport’s growth
We expect strong intra-Asia travel to buoy SATS’s revenue. Stronger passenger volume had lifted its FY13 revenue by 8% yoy, with revenue growth across the board: gateway services (+8%) and food solutions (+8%). High staff costs were mitigated by slower rises in raw-material costs, supporting a 0.6%-pt expansion in EBIT margins to 10.6%. Excluding a S$16.8m impairment charge relating to its divestment of Daniels, core net profit grew 20%.
Gateway services hit by labour costs
Costlier labour took a toll on gateway services EBIT (-54%). Wage inflation was attributed to headcount increases and foreign-worker levies. Fortunately, growth from food solutions overwhelmed the weakness. EBIT margins from food solutions gained 2.8% pts, thanks to slower rises in raw-material costs and productivity gains.
Dividend sweetener
A 6ct final dividend and 4ct special dividend was declared, taking FY13 DPS to 15cts, above our 11.8ct forecast. Dividend prospects remain favourable with SATS enjoying positive free cash flows and a net-cash position.
SATS – CIMB
Cruise control
SATS wrapped up FY13 on a pleasant note, not only reporting stronger-than-expected profits but also dishing out higher-than-expected dividends.
FY13 core net profit surpassed Street and our expectations by 8% on the back of margin strength. We fine-tune our FY14-15 EPS by less than 1% and raise our target price (still at 16.8x CY14 P/E, 1SD above its 8-year mean) marginally. Maintain Outperform with re-rating catalysts to come from growth in Changi Airport’s passenger traffic.
Leveraging Changi Airport’s growth
We expect strong intra-Asia travel to buoy SATS’s revenue. Stronger passenger volume had lifted its FY13 revenue by 8% yoy, with revenue growth across the board: gateway services (+8%) and food solutions (+8%). High staff costs were mitigated by slower rises in raw-material costs, supporting a 0.6%-pt expansion in EBIT margins to 10.6%. Excluding a S$16.8m impairment charge relating to its divestment of Daniels, core net profit grew 20%.
Gateway services hit by labour costs
Costlier labour took a toll on gateway services EBIT (-54%). Wage inflation was attributed to headcount increases and foreign-worker levies. Fortunately, growth from food solutions overwhelmed the weakness. EBIT margins from food solutions gained 2.8% pts, thanks to slower rises in raw-material costs and productivity gains.
Dividend sweetener
A 6ct final dividend and 4ct special dividend was declared, taking FY13 DPS to 15cts, above our 11.8ct forecast. Dividend prospects remain favourable with SATS enjoying positive free cash flows and a net-cash position.
SATS – Lim & Tan
- Notwithstanding the one-off impairment charge for sale of Daniels Group which was completed in October 2011 for S$16.8 million and other small exceptional items, SAT’s 4Q ’13 underlying net profit from continuing operations rose 32.4% y-o-y, buoyed by increased flights and higher meal volumes.
- SATS also proposed a final dividend of 6 cents per share, and cut its special dividend to 4 cents per share from last year’s 15 cents per share. The full financial year 2013 dividend yield amounts to 4.7%.
- Management guided that demand for the Group’s gateway and food business could continue to be underpinned by strong growth of passenger traffic at Changi Airport and within the Asian region. But air freight demand could remain weak. Similar to other Singapore corporates with domestic operations, the company could see rising wage costs due to the Singapore government’s manpower policies going forward.