Author: tfwee
ComfortDelgro – CIMB
Core business remained strong
• Within expectations. 3Q08 core net profit of S$48.3m (-18.1% yoy) was within our estimate but ahead of consensus. 9M08 core net profit constitutes 76% and 80% of the respective FY08 estimates. Pretax margins slipped to 9.4% from 12.2% in 3Q07, but improved from 6.5% in 2Q08. Revenue growth of 5.6% yoy to S$804m was in line, driven by all segments though dented by the translation impact of A$ and ₤ revenue. Overseas operations made up 42% of revenue in 3Q08.
• Reprieve from lower energy costs. Fuel and electricity costs rose by 38% to S$78.7m while materials & consumables rose 49% to S$90.2m. On diesel sales, a much lower operating loss of S$0.2m was incurred vs. S$11.3m in 2Q08 and S$6.3m in 1Q08. We expect these energy-related segments to perform better with retreating global energy prices.
• Operational review. Bus revenue dipped 1.2% yoy to S$396.8m in 3Q08, due to the translation impact of a strong A$ and ₤ against S$. China and Singapore growth was led by higher ridership. Taxi revenue rose 2.7% yoy to S$238.2m, on increased cashless transactions in Singapore, strong China and Vietnam contributions and a larger overall fleet. Rail was up 25% yoy to S$28.5m on increased ridership; its operating profit rose 74% yoy to S$4m.
• Outlook. The group is expected to maintain its performance, supported by ridership growth and steady vehicle inspection and automotive engineering businesses in Singapore, and continued growth in its China bus and taxi operations. However, management is cautious in view of volatile forex rates which have an adverse impact and weakness in the car leasing segment during this recession.
• Forecasts adjusted; maintain Outperform. We adjust our FY08-10 forecasts by – 1.7% to +5.1% to reflect retreating energy prices, higher ridership and forex translation costs. We have also raised our WACC assumption to 11% from 9.3%, to factor in higher earnings risks due to volatile forex. Our new DCF-based target price falls to S$1.97 from S$2.28. Maintain Outperform on the back of an attractive dividend yield of 6.9%.
SingTel – Phillip
2Q Results
2Q FY09 Results. SingTel reported 2Q FY08 operating revenue of S$3,891m (+5.3% yoy) and net profit of S$868m (-12.1% yoy). Revenue increased due to the growth of the Singapore and Australian postpaid mobile market.
However, net profit was lower because of the introduction of iPhone 3G, the depreciation of the regional currencies and weaker earnings from the regional mobile associates. Excluding the depreciation of the Australian dollar and the regional currencies, net profit would have declined by a smaller amount of 5 percent. It also announced an interim dividend of 5.6 cents per share. This was the same as the interim dividend declared in FY08.
Performances. In Singapore, SingTel continued to post double-digit revenue growth of 10.3 percent to S$1.33 billion due to success in gaining market shares in the data and mobile businesses. In particular, this was boosted by the successful launch of iPhone 3G on 22 August 2008. Moreover, in Australia, Optus achieved an increase in operating revenue of 6.8 percent to A$2.06 billion despite a highly competitive market.
The regional mobile associates posted weaker-than-expected results for the quarter. Pre-tax earnings dropped 25.5 percent to S$461m due to the depreciation of 8 percent to 17 percent in the regional currencies and poor performances from Telkomsel, Globe and Warid.
FY09 Outlook. Management expects its operating revenue for the Singapore and Australian businesses to grow. It also anticipates the overall pre-tax earnings contributions of the region mobile associates to decline for FY09. Furthermore, there will be negative impact on the revenues and profits from the depreciation of the Australian dollar and the regional currencies against the Singapore dollar.
Maintain BUY recommendation, target price reduced from S$4.01 to S$3.86. Due to the lower-than-expected profit from SingTel, we have reduced the target price to S$3.86. We anticipate that the regional mobile associates will continue to face competition in their respective regional markets. Moreover, the strengthening of the Singapore dollar against most currencies will result in lower profits for Optus and the regional mobile associates.
Nevertheless, SingTel remains a BUY for investors. This is because its business continues to grow in Singapore and Australia with revenue contributions from its regional mobile associates.
SingTel – BT
SingTel sees job cuts as a last resort
Q2 net profit down 12%; group looking to redeployment to cut operating costs
Singapore Telecommunications’ quarterly profit may have skidded to a three-year low, but it will look to redeployment instead of retrenchment to cut operating costs.
‘Certainly, job cuts will be something that we see as a last resort,’ said SingTel CEO Chua Sock Koong.
The group yesterday reported a 12.1 per cent fall in net profit to $868 million for its second quarter ended Sept 30, from $988 million a year earlier. Basic earnings per share slipped 12.2 per cent to 5.45 cents, while revenue eased 5.3 per cent to $3.89 billion.
With its second-quarter earnings having been dented by plunging regional currencies and higher handset subsidies, SingTel has already frozen hiring and is also cutting down on discretionary spending such as advertising expenditure in Singapore and Australia. But instead of cutting manpower, it could use reassignments to glean more savings.
‘As a business, we continue to review the operating efficiencies of each of our businesses to ensure we deliver a high quality of service to our customers. As part of this efficiency drive, there could be redeployment of headcount across the different businesses,’ Ms Chua told reporters at the group’s Q2 results briefing yesterday.
Her assurance of job security should provide some welcome relief for SingTel’s pool of 11,130 employees here following its recent profit warnings and the announcement of 900 jobs cut by another local corporate titan, DBS Group Holdings, last week.
Reiterating its guidance last week, SingTel said its profitability took a hit in Q2 as the Sing dollar’s sustained appreciation against major regional currencies crimped contributions from all its foreign units.
The company derives nearly 60 per cent of its earnings from overseas through wholly-owned Australian operator Optus, as well as regional associates in India, Bangladesh, Indonesia, Pakistan, the Philippines and Thailand.
Contribution from Optus shrank with the Australian dollar dropping against the Singapore dollar this year. Other currencies such as the Indian rupee, Thai baht and Philippine peso also fell, lowering earnings from associated companies such as India’s Bharti, AIS in Thailand, and Globe in the Philippines.
During the quarter, profitability was further dampened by losses from Warid Telecom. SingTel’s Pakistani investment suffered a wider-than-expected pre- tax loss of $41 million, with the group’s share of pre-tax operating losses at $24 million, but this was mitigated by a one-time foreign exchange gain of $67 million following a capital reduction in SingTel’s Australian unit.
‘We’re still in the phase of rolling out networks (in Pakistan). There has also been a reduction in consumer spending (there) as a result of the financial crisis,’ Ms Chua explained.
As a result, pre-tax profit contributions from the firm’s six regional associates plunged 26 per cent during the quarter.
Profits from Optus remained flat in Q2 while net income from Singapore operations fell 4.8 per cent as a result of higher marketing costs and subsidies associated with the iPhone 3G.
The Republic’s largest operator was given first dibs at selling Apple’s second-generation touchscreen handset in Singapore on Aug 22. Optus launched it a month earlier as part of a non-exclusive arrangement. Hefty subsidies for the iPhone 3G slashed Ebitda (earnings before interest, tax, depreciation and amortisation) in both countries by nearly $71 million, according to SingTel.
‘We are confident that iPhone customers will deliver growth and value,’ Ms Chua reiterated, adding that the Arpu (average revenue per user) from iPhone owners is 1.5 times higher than other post-paid mobile customers.
SingTel has collectively sold more than 170,000 units of iPhone 3G to date in Singapore, Australia, India and the Philippines.
In Singapore, the much- hyped device lifted SingTel’s post-paid subscriber base by 45,000 from July to September – twice as many as rivals StarHub and MobileOne. Revenue also grew across all its local business lines, with its cellular and Internet units both chalking up double-digit gains.
‘Overall, Singapore and Optus delivered good numbers. Associates’ contribution was weak mainly due to currencies, and the extent of losses at Pakistan investment Warid took us by surprise,’ Macquarie Research said in a research note.
For the first half of its financial year, SingTel’s net profit dropped 8.8 per cent to $1.74 billion while operating revenue rose 5.6 per cent to $7.67 billion. Stable free cash flow for the group – defined as operating cash including associate dividends less cash capex – stayed at about $1.7 billion for H1 FY09. Net debt gearing ratio increased 1.6 percentage points to 25.8 per cent on the back of additional bank borrowings.
SingTel has declared an interim dividend of 5.6 cents for the six months ended Sept 30, unchanged from 2007.
Looking ahead to the full year, SingTel still expects its operating revenue and Ebitda in its two core markets – Singapore and Australia – to grow but pre-tax earnings from its regional associates are set to be lower compared to last year.
‘The weaker Australian dollar will have an adverse impact on the earnings for the group. What will hit it further is the lacklustre performance of its regional associates. Telekomsel, in particular, saw pre-tax profit slump 40 per cent to S$113 million (in Q2),’ noted Terence Wong, co-head of research at DMG & Partners.
SingTel shares closed 1.3 per cent higher at $2.38 yesterday.
MIIF – BT
MIIF cuts dividend to pay off debts
MACQUARIE International Infrastructure Fund (MIIF) will cut its dividend and use any surplus cash to repay its debts completely by end-2009 in a bid to shore up its battered share price, its fund manager said yesterday. From now on, MIIF will exclude gains on investment disposals from its twice-yearly ordinary dividend, which will be paid only out of regular operating income from its businesses.
Any extra cash will be used to repay unsecured debt, which is expected to reach $60 million next year, MIIF said. This will remove any refinancing risk associated with its corporate debt. MIIF’s shares have plunged 61.4 per cent this year, dragged down by worries over its level of debt. They traded at 38 cents apiece yesterday.
MIIF’s manager said the fund’s unsecured corporate borrowings stood at $27.5 million at end-September and are expected to reach $60 million next year as it draws further on loan facilities to fund investment and working capital needs. The facilities expire in 2011. ‘While MIIF’s corporate facilities have a remaining tenor of three years, we consider the early repayment of corporate borrowings a prudent course of action in the current market,’ said Gavin Kerr, managing director of MIIF’s manager.
As a group, including portfolio companies, MIIF had borrowings of $123.2 million at end-September, including $89.1 million of long-term debt. The fund reported a net loss of $91.4 million for the three months to end-September, plunging deep into the red due to $80.7 million in losses on the fair value of its financial assets during the quarter. A year earlier, MIIF made a net profit of $64.8 million, boosted by fair-value gains of $77.1 million. Net income adjusted to show the earnings out of which future dividends will be paid grew to $51.2 million for the quarter, from $17.4 million a year earlier.
The adjusted net income excludes changes in the value of MIIF’s financial assets, which the fund says do not affect its cash flow or ability to pay dividends for the period. With the new dividend policy, adjusted net income now also excludes gains or losses from the disposal of investments. Mr Kerr said the fund’s infrastructure businesses ‘continue to perform solidly’ and are expected to continue generating reliable cash flows. The fund’s recent share price performance ‘has been disappointing’, he added. ‘While this is primarily a consequence of external factors beyond MIIF’s control, the board and management have developed a range of initiatives to address this share price under-performance.’
MIIF said it expects to pay shareholders a dividend of three cents a share for the six months to end-December, down from 4.25 cents for the half-year to end-June and the lowest dividend payout since end-2005. Recurrent operating income from MIIF’s businesses will continue to be distributed to shareholders. If capital management initiatives result in additional cash flows, ‘MIIF will determine, at that time, whether to fund a special dividend to share holders or buy back shares’, it said.
SBS Transit – BT
SBS Transit Ltd on Wednesday reported net profit for the third quarter to end September 2008 fell 17 per cent from a year ago to S$8.32 million.
Revenue rose 10 per cent to S$184.81 million due to higher bus and rail fare revenue and higher rental income.
However, operating expenses of S$178.3 million for 3Q08 increased by 12 per cent or S$19 million as compared to S$159.3 million in 3Q07 due mainly to higher fuel and electricity costs which increased by 51.9 per cent or S$17.7 million.
Group cash and cash equivalents as at 30 September 2008 was S$12.6 million. If the held-for-trading and available-for-sale investments were to be included, the cash position as at 30 September 2008 would be S$74.9 million.
SBS said revenue from Bus and Rail Operations is expected to continue to improve on the back of growth in ridership and fare increase from 1 October 2008.
With the economic downturn, advertising revenue is expected to slow down. With the recent drop in oil prices, the cost ofdiesel and electricity is likely to be lower.