Author: tfwee
SingTel – BT
Index-linked selling pushes SingTel down 9.6%
At $2.06 – its lowest since Feb 2004 – it’s cheaper than rival StarHub
A SINGTEL share is now cheaper than a StarHub share, after investors dumped SingTel’s stock yesterday in index-linked selling.
While concerns of Aussie-dollar weakness and slowing earnings growth have added to bearish sentiment on the SingTel stock, dealers said the sell-off was largely triggered by selling of index stocks.
SingTel slipped 9.6 per cent to $2.06 – its lowest price since February 2004 – on active volume of 43.08 million shares. StarHub closed at $2.10.
‘The market is pessimistic and is using SingTel as a proxy because that’s the most liquid stock,’ said OCBC analyst Carey Wong. ‘That’s part and parcel of being in the main index and by far having the largest market cap and being the heaviest weight in the index.’ He has a ‘buy’ call on SingTel but is placing his rating under review pending fiscal Q2 results due on Nov 12. Mr Wong is looking for more clarity on SingTel’s Australian business Optus but believes that the worst of forex losses is behind SingTel.
Yesterday afternoon, news broke that Australian-based Soul, the former SP Telemedia, has withdrawn from a SingTel-led group bidding to build Australia’s national high-speed Internet network – the second company to do so after Telecom Corp quit last week. This may undermine the consortium’s chances of success.
Analysts believe that yesterday’s share sell-off had less to do with SingTel’s fundamentals, although there has been some bad news recently. SingTel said earlier this week that Optus will cull 115 jobs from its key Optus Networks division, which oversees the deployment and maintenance of wireless and fixed-line infrastructure. SingTel has imposed a headcount freeze in Singapore and introduced cost-cutting measures.
A local tech analyst noted that SingTel’s fundamentals remain relatively better than those in many other sectors and that its earnings are more resilient than those of other telcos.
But recent expenses, such as sponsorship of the Formula One Grand Prix and the initial cost incurred in carrying Apple’s iPhone, could add to woes of rising costs and eroding margins.
Analysts have trimmed their forecasts for SingTel to price in the impact of the economic slowdown. They expect higher costs and slower revenue growth in FY09.
Noting that SingTel faces earnings pressure domestically and overseas, DBS Vickers analyst Sachin Mittal trimmed his FY09 and FY10 earnings forecasts by 5.5 per cent and 7.5 per cent respectively to price in potentially disappointing growth at India’s Bharti next year and lower corporate spending in Singapore. He maintained a ‘hold’ call on the stock.
ABN Amro analysts Ian Martin and Arthur Pineda said in a report that they are cutting their forecasts for revenue growth and margin gain at Optus in the context of an economic slowdown. ‘We believe negative risks are more evident than positive ones,’ they said. ‘Negative risks include a more rapid slowdown in revenue growth in Singapore and among associates.’
They changed their rating on the stock to ‘hold’ from ‘sell’, given the sharper than expected fall in the share price.
SFI – BT
S’pore to develop ‘food zone’ in Jilin
SFI project will breed pigs, process and export pork
SINGAPORE is beefing up efforts to ensure its food security for the long term, with discussions underway to see how to best develop a ‘food zone’ in Jilin province in China.
Sharing these plans with Singapore reporters yesterday, Prime Minister Lee Hsien Loong said that the aim was to build an integrated facility in Jilin city, located in the north-eastern part of China. There, pigs would be bred and farmed, with the pork eventually processed and then exported.
‘This is a commercial project between our Singapore Food Industries (SFI) and the Jilin city government, and we have just signed a MOU (memorandum of understanding),’ said Mr Lee, who is in Beijing to attend the two-day Asia-Europe Meeting which begins today.
This first-of-its-kind project for Singapore came up during bilateral discussions that Mr Lee held with Chinese leaders yesterday, just after he witnessed the signing of the China-Singapore free trade agreement (FTA).
‘As (Chinese Premier) Wen Jiabao said to me, we can develop this and make it successful. Both countries can cooperate on issues of quality and safety in food,’ said Mr Lee.
National Development Minister Mah Bow Tan, who is also in Beijing as part of Mr Lee’s delegation, said that the go-ahead for the project would depend on the results of a joint feasibility study that is expected to be completed in the next six to 12 months.
‘In the long term, our goal is to provide a supply of food not just for the local consumption, but also for export to Singapore, in line with our overall objective of ensuring food security,’ said Mr Mah.
If successful, the Jilin food zone, in the initial phase alone where it would occupy five to 10 square km of land, could supply up to 10 per cent of Singapore’s total pork demand, said Mr Mah.
SFI is a government-linked company. The food zone project will be driven by the private sector, with SFI likely to rope in several partners to form a consortium. The Agri-food and Veterinary Authority (AVA) will take on the role of food safety regulator.
While a pig farm is the most ideal way to kick things off, the food zone could well expand to include chicken farming and other products in the longer run.
‘Currently, Singapore is buying food from many countries and diversifying its resources to ensure a steady stream of food coming in. Of late, the government has been studying this strategy to see how to build on this and go upstream and get involved in the production of food,’ said Mr Mah.
‘This food zone project fits in very nicely with that strategy,’ he added. ‘It can be one of the major suppliers of pork in Singapore, and help significantly in our food resilience.’
SFI – BT
Ambrosia Investments mulls SFI stake sale
The subsidiary of Temasek-linked ST is evaluating options
Ambrosia Investments, a wholly owned subsidiary of Temasek-linked Singapore Technologies, is evaluating options regarding its stake in Singapore Food Industries Limited (SFI).
Ambrosia Investments holds a 69.68 per cent stake in SFI, making it the company’s majority shareholder.
SFI chief Roger Yeo told BT that he was not sure if Temasek was looking to sell off its stake. However, referring to comments by Temasek in a Bloomberg report yesterday, he said that it seemed Temasek was ‘thinking of a sale’.
In the report, Bloomberg quoted Temasek’s managing director of investments, David Heng, as saying that Temasek was exploring its options ‘with the aim of unlocking shareholder value and optimising returns’. No decision on the stake has been made, Mr Heng added.
‘The Board would like to caution that there is no assurance that any transaction will materialise arising from the evaluation. Further announcements will be released if and when appropriate,’ SFI said in an announcement yesterday. It also advised shareholders and investors to exercise caution in their dealings in the company’s shares.
The statement was in response to a query dated Oct 22 by the Singapore Exchange, as there had been a substantial increase in share price on that day. On Wednesday, its share price hit a high of 82 cents from an opening price of 74.5 cents, before closing at 80 cents. SFI closed at 82 cents yesterday, up two cents.
In the statement, SFI also pointed to an MOU signed by its subsidiary, SFI Manufacturing Pte Ltd, on Wednesday with the Jilin City government as a plausible reason for the spike in trading activity.
Under the agreement, SFI Manufacturing will collaborate with the Jilin City government to build an industrial scale pig farm and processing plant.
MIIF, MPS – BT
Three property, infrastructure funds allay fears
Two MacarthurCook funds and one Macquarie fund update financial positions
THREE property and infrastructure funds yesterday issued statements in a bid to allay market concerns about tighter credit, and to provide updates on their financial positions.
Facing a possible rating downgrade by Moody’s Investors Service, MacarthurCook Industrial Reit (MI-Reit) reassured investors that it is ‘advanced in negotiations’ to refinance a $220 million facility maturing in April 2009. Discussions should be finalised in January next year.
Moody’s said on Tuesday that MI-Reit, with a Baa3 corporate family rating, ‘faces significant refinancing risks’ as this amount of debt is not covered by available committed facilities.
Moody’s review also reflected concerns over MI-Reit’s asset and tenant concentration, which could be ‘much greater…than is consistent with a Baa3 rating.’
To this, MI-Reit said that its income is protected by a long lease expiry profile. For instance, only 3.6 per cent of the trust’s rental income will be subject to lease expiry in FY2010.
Head lease arrangements and a diversified portfolio of quality tenants also contribute to income security, it added. Around 36 per cent of rental income comes from manufacturing facilities which ‘tend to have higher tenant retention rates in an economic downturn’.
MI-Reit ended trading yesterday with an unchanged unit price of 33 cents.
Another fund, the MacarthurCook Property Securities Fund, also updated investors on its operations yesterday.
‘While interest rates around the world are now trending down, the ability to source competitively priced debt, combined with the anticipated slowing in economic growth, continues to be a concern for the market,’ said Richard Haddock, chairman of fund parent MacarthurCook Fund Management Ltd.
A priority is to further reduce debt and prudently manage its underlying portfolios, said the MacarthurCook Property Securities Fund. One strategy is to cut its weightings on unlisted property and use those funds to reduce debt.
A third fund, the Macquarie International Infrastructure Fund Limited (MIIF), said yesterday that it has no bilateral dealings with known troubled financial institutions.
According to the fund, borrowings held by its underlying businesses have remaining maturities of three to 14 years, and most of its interest exposures are also hedged for the medium to long term.
MIIF also said that its businesses are performing strongly in line with management’s expectations. It therefore expects income this year to be comparable with that received last year.
The unit price for MIIF rose 2.5 cents yesterday to close at 37.5 cents.
M1 – DBS
Competition takes its toll
Story: Net profit fell 21% y-o-y to S$34.4m, significantly lower than our estimate of S$40m. Service revenue fell for the first time (-1.8% y-o-y, -5.2% q-o-q) this year, as M1 struggled to keep churn rate under control. Management has lowered its guidance from “stable operations” to “single digit decline in core earnings” for FY08.
Point: We want to highlight two key points.
1. Post-paid mobile competition stronger than expected.
Handset subsidies are coming down, evident in lower handset sales. But free 3-6 months subscription plans offered by competitors have led to higher churn rate and weaker ARPU. M1’s monthly churn rate reached 1.8% from 1.5% in the previous quarter. SingTel and StarHub seem to be benefiting from high churn at M1.
2. Pre-paid mobile subscriber growth slowing sharply.
Although M1 managed to increase its pre-paid market share slightly, the sector pre-paid subscriber base has contracted 2.3% q-o-q. The slowing Singapore economy could have resulted in a net outflow of workers and tourists, who are typical pre-paid subscribers. We would like to highlight that with aggressive pricing of international direct dialing (IDD) service, traffic has increased significantly but IDD revenue has fallen by 15% q-o-q.
Relevance: We lowered FY08F and FY09F earnings by 8.6% and 12%, respectively, after imputing lower revenue assumptions. Based on M1’s historical trading range (8x-13x), we applied 10x average FY08-FY09F EPS (instead of 12x) to derive a revised target price of S$1.65. The stock has performed well compared to the broader market, and could see a de-rating after this set of dismal results. We downgrade M1 to FULLY VALUED.