Author: tfwee
SingTel – CIMB
Raising fixed line rates
SingTel will raise both residential and business fixed line voice: a) subscription rates and b) call charges from 1 Jan 09, as summarised below. Subscription fee is raised by 7-10% and call charges by 14%. ‘For us (in Singapore), it’s no longer business as usual.
Separately, SingTel Singapore CEO Allen Lew said, “We are already starting to see the impact of the global financial crisis on some parts of the business. We are adopting a (cost-cutting) framework that is customised for what we see as a 12 to 18 month period of uncertainty and difficult economic environment.” SingTel will also rein in “discretionary costs” such as its advertising expenses. “Until our revenue starts flowing back like the old days, we will definitely have to cut back.”
Comments
Small positive. Fixed line voice revenue contribute to 5-6% of FY10-12 SingTel Singapore’s revenue and only 2% of group revenue. Assuming a weighted average 10% increase in fixed voice revenue, with zero marginal cost and 18% corporate tax, SingTel’s FY10-12 core net profit is boosted by 0.5-0.7%. Hence, we maintain our forecast.
Fixed-to-mobile migration is unlikely to be hastened significantly as fixed line tariffs are substantially cheaper than that of mobile. Fixed line charges will be 1.6 cts/min vs mobile of tariff of 8-25 cts/min.
Valuation and recommendation
Maintain UNDERPERFORM, on SingTel with a SOP-based target price of S$3.50 over: 1) concerns over expected stiff competition between SingTel and StarHub for the exclusive rights for the 2010-2012 seasons for the Barclays Premier League and 2010 World Cup; 2) a cautious outlook. We gather that corporate users are cutting back on telco services; and 3) the appreciation of the S$ vis-à-vis currencies where it has major holdings in, namely the Australian dollar, Indian rupee and Indonesian rupiah. We are reviewing our target price given that sharp depreciation of the regional currencies vs the S$.
Our top pick in the sector is M1, which we recommend a Neutral with a target price of S$2.15 for its attractive dividend of 8%, lower risk to earnings and cash flow as it averts a costly bidding warfare over content.
SPH – BT
SPH to sell stake in Hong Kong publisher
SINGAPORE Press Holdings said yesterday it will sell most of its stake in a Hong Kong publisher. Through its wholly owned indirect subsidiary Magazines Incorporated, SPH will sell 80 per cent of its stake in MI Publishing (MIHK) to Sing Tao Holdings (BVI). Magazines Inc is a wholly owned subsidiary of SPH Magazines.
SPH did not say how much it will be paid for the stake. ‘The consideration will be 80 per cent of the net asset value of the entire share capital and will be determined in the completion accounts to be finalised on or around Nov 15,’ it said.
The shares will be transferred to Sing Tao Holdings, which owns media company Sing Tao News Corp, when conditions under a sale-and-purchase agreement are fulfilled, SPH said. MIHK will no longer be a subsidiary of SPH but will remain an associate. After completion of the transaction, MIHK will continue to publish The Peak Hong Kong under a publishing licence arrangement with SPH Magazines, SPH said.
The divestment is not expected to have a material impact on SPH’s earnings or net tangible assets per share for the financial year ending Aug 31, 2009.
As it hives off its stake, SPH is getting into the book publishing business in Singapore. It said last month it will set up a book publishing business under its subsidiary Straits Times Press. It has taken over the contracts and intellectual property rights of SNP International Publishing, the book publishing arm of SNP Corp.
SPAusNet – CIMB
New long-term agreements benefit shareholders
Improved revenue, reduced expenses
SPN has announced a number of new operational arrangements with the Singapore Power Group. The arrangements are expected to strengthen SPN’s operational model, enhance its focus on niche asset services and provide immediate benefits to security holders through reduced management-performance fees.
Revenue enhancements for non-regulated services. SPN will provide end-to-end network metering services, technical services and vegetation management services to electricity and gas networks owned and managed by Jemena (formerly a part of the Alinta Group and now a member of the SP Group). SPN will also deliver contestable metering services to Jemena’s existing customers. These services are expected to contribute annual revenue of A$75m-85m to SPN. To ensure continued capital investment and deliver network growth, Jemena has been appointed an SPN preferred supplier, for the delivery of A$35m-40m of annual capex to SPN, or an estimated 10% of its annual capex. Each arrangement is for an initial 5-year term and
is on arms-length terms.
Expanded scope of work for SPN. Agreement has also been reached with a whollyowned subsidiary of SPI Management Services (SPIMS), SPN’s management company, for it to be the exclusive provider of IT services to SPN and Jemena. These services include applications management, and infrastructure and service delivery, at agreed allocations of costs with no profit margin accruing to SPIMS’ subsidiary. The agreement is for an initial term of seven years. SPN will retain its core asset-owner functions of IT strategy and policy, information security and real-time systems. The shared IT services will provide SPN with best-practice IT solutions and access to a wider pool of skilled IT resources.
Reduced expenses. With an expanded scope of work and opportunity for Jemena to participate in synergies, SPIMS has agreed to reduce performance fees payable under the Management Services Agreement. The reductions, effective 1 Oct 08 and for the duration of the IT service agreement, involve the waiver of base incentive fees, being 0.1% of market capitalisation, and the reduction of the performance-fee cap from 0.75% to 0.50% of market capitalisation. The fee reductions will be an immediate benefit for SPN security holders.
Valuation and recommendation
Positive impact on forecasts. As a result of the arrangements and expense reductions, we have raised our net profit forecasts by 9-20% for FY09-11. Our revenue forecasts have also been raised by 2.7-6.0% to account for increased revenue in the non-regulated services segment. While there are reduced expenses from management-fee reductions, we expect other expenses to rise, from providing a greater scope of services to Jemena. As such, EBITDA margins are forecast to remain at 61-62% in FY09-10.
Maintain Outperform; higher target price. We continue to like SPN’s excellent earnings visibility and predictability as well as attractive yields per stapled security. With our forecast upgrade, our DCF target price (WACC 10%, terminal growth 3%) rises to A$1.44 or S$1.71, from A$1.34 or S$1.59, supported by distribution yields of over 11%.
SMRT – DMG
Investing in Shenzhen transport company
SMRT has entered into an agreement to acquire a 49% equity interest in Shenzhen Zona Transportation, a leading road transport company in Shenzhen. The purchase consideration of Rmb 430m (S$90m) will be paid in cash. The balance 51% continues to be held by National Express Transportation Group.
Zona provides the following:
• Taxi services and car and bus repair within Shenzhen;
• Town and county bus services, car leasing, bus and coach services within and beyond Shenzhen; and
• Public bus and mini bus services outside the Shenzhen Special Economic Zone.
Zona has an existing fleet of 803 buses, 142 chartered & tourist buses, 78 long haul coaches, 830 taxis and 260 leased cars in the Shenzhen region.
Following the acquisition, Zona will be an associate company under SMRT. The investment is earnings accretive. But SMRT expects immaterial financial impact on SMRT’s FY09 results.
As of Dec 07, Zona has a net asset value of Rmb 483m (S$101m), represented by NTA of Rmb 59m and net intangible asset of Rmb 424m. The net intangible assets largely comprise taxi operating licences acquired through open bids.
Separately, SMRT has signed a new 6-mth fixed-rate electricity contract effective 1 Oct 08. The rate for this new contract is 30% higher than that for the previous 6-mth contract, despite the recent softness in crude oil price. We have therefore raised our forecast of FY09 electricity expenses.
On a positive note, we have raised FY09F MRT ridership growth to 10.9% (versus earlier assumption of 9.7%). This follows the 11.6% YoY expansion for Apr-Aug08 to a MRT monthly average ridership of 42.69m. After factoring in higher electricity expenses as well, we are cutting our FY09 net profit forecast by 1.6% to S$144.5m.
SMRT share price has risen 17.9% YTD whilst the STI has fallen 31.9%. Most of the positives are already factored into SMRT share price. Though the investment in Zona is a good start to SMRT expanding overseas, the impact is seen to be marginal in the short term. We see little upside for SMRT share price going ahead. Even the FY09 dividend yield of 4.1% (based on 85% payout ratio) is only slightly higher than the 3-mth SIBOR of 1.85%. The market risk premium is now 9.46%, versus 8.68% two months ago. Consequently, our DCF valuation has been cut from S$2.08 to S$2.03. We are downgrading SMRT from BUY to NEUTRAL.
STEng – BT
ST Engg will acquire assets at distress values
SINGAPORE Technologies Engineering Ltd, Asia’s biggest aircraft maintenance company, will seek acquisitions as a global financial crisis cuts asset prices.
‘During such times, there are opportunities for the group in the midst of the market challenges,’ the company said yesterday in response to Bloomberg queries. ‘We may be able to acquire companies which are now more appealing in terms of valuation.’
ST Engineering said that it will not make use of shareholder approval to buy back shares, preferring to conserve cash for ‘better business opportunities’. Stocks worldwide plunged yesterday, extending the worst global sell-off in 21 years, after US lawmakers rejected a US$700 billion rescue plan for the financial markets, deepening concerns of a widespread recession.
ST Engineering had an order book totalling $9.2 billion as at June 30. The company repairs aircraft and makes military vehicles and navy vessels.
The company added nine cents, or 3.5 per cent, to $2.69 at the close of trading in Singapore. The stock has fallen 28 per cent this year.
ST Engineering has bought assets at distress values before. In 2002, the company purchased the shipbuilding business of US-based Friede Goldman Halter Inc for US$66 million in a bankruptcy auction. — Bloomberg