Author: tfwee
SPH – DBS
August AdEx grew 8.9%
Story: In the latest Nielsen Media Research’s AdEx figures, expenditure on SPH’s newspaper display and classified ads rose 8.9% y-o-y in Aug. Based on SPH’s full year (Sep 07 – Aug 08), advertising expenditure grew 7% y-o-y, which is similar to our full year estimates.
Point: We note that AdEx tends to correlate with economic growth. In view of a more challenging outlook, we are assuming flat AdEx growth in FY09F (from a 2.5% growth previously). We also assumed higher newsprint cost of US$850/mt, up from US$710 previously assumed. As such, we trimmed our FY09F net profit down by c.8% to S$490.4m. On a bear-case scenario, assuming an 11% plunge in AdEx as per 1998, we estimate that our net profit forecast for FY09F could drop to S$427m, 13% lower than our current estimates. This would equate to a TP of S$3.97 – still above current trading price – assuming all other factors remain constant. However, in our opinion and at this point in time, we do not see such a drastic drop as per 1998.
Relevance: Maintain Buy, TP: S$4.63. Along with a potential slow down in AdEx and a de-rating of the market, we now peg the newspaper operations to 16x FY09F earnings (from 20x previously). Our SOTP valuation is hence revised to S$4.63. In the current volatile market, we like SPH for its defensive feature backed by an attractive net dividend yield of >7.5%. In the last 6 years, SPH have paid out more than 90% of its EBIT). SPH should be reporting its 4Q and FY08 results on 10 Oct and we are projecting a final dividend of 24 Scts (on top of interim dividend of 8 Scts), given growth in core publishing business, growth in its property rental and
further revenue recognition from its Sky@Eleven residential development.
STEng –
Crisis valuations
• Crisis valuations, negatives priced in. STE’s share price has receded 30% YTD on concerns over a slowdown in the global economy and aviation industry. We believe its current crisis valuations (13x CY09 P/E, below its post-911 valuation of 14x in 2001 and close to its post-SARS valuation of about 13x) have incorporated a weak macro outlook and cost pressures on the aviation industry.
• Breather from declining oil prices. The recent retreat in oil prices below US$100/barrel has started to take some pressure off airlines. IATA has also revised its financial forecast for 2008 to a net loss of US$5.2bn, based on an average oil price of US$113/barrel, short of the US$6.1bn worst-case forecast in June when oil cost US$135/ barrel. Although the weakness should persist into 2009, with forecast net losses of US$4.1bn, the outlook is more sanguine than after 911 (US$11bn loss) and SARS (US$6bn loss).
• Defensive. STE’s earnings growth is expected to be decent at a 3-year EPS CAGR of 9% and ROEs towering above 30%. A strong net cash position should also ensure high payouts (100% typically unless there is a large acquisition) with yields of 7%.
• Upgrade from Neutral to Outperform but target price remains S$3.39, still based on blended valuations (DCF, P/E, dividend yield and DDM). We have left our earnings estimates intact. STE is trading at trough valuations of 13x CY09 EPS or a 30% discount to our target price. Key catalysts could include new acquisitions, sizeable contract wins and a strengthening of the US$.
Transportation – DB
Fare hikes slightly less than expected
Effective fare hike expected to be small; Comfort the stock to own
The net effective fare hike granted was slightly less than our expectation of 1%, but given the defensive characteristics of both SMRT and Comfort we maintain Buy. Comfort in particular offers good value, and if oil prices continue to decline, this could offer upside to our earnings estimates. Ridership growth for both trains and buses remains strong.
Fare hike offered, strategy is clearly to drive up public transport ridership
The Public Transport Council (PTC) has granted an overall net fare adjustment of 0.7% for 2008. This was slightly less than the 1% we expected. The headline percentage fare hikes are more (5.5% in some cases) but the net benefit for Comfort’s bus and train operations is expected to be 0.9% and for SMRT’s operations 0.6%. The difference in headline increase and the effective increase is because the transfer rebate to passengers was increased from 25 cents to 40 cents.
Transfer penalty will be fully removed in 2009
Under the Land Transport Masterplan, distance-based through fares will be introduced in 2009 to make transfers more seamless in the hub-and-spoke public transport system. So in 2009, when the fare hike requests are again reviewed, the net effective fare hikes are likely to be smaller than the headline numbers would indicate.
SMRT has contracted electricity prices; diesel prices unhedged for both
SMRT has contracted its electricity prices through to March 2009. While this should ensure stability in the cost structure, we note that the new contract was about 30% over the earlier one. Both ComfortDelGro and SMRT have no hedges in place for diesel, but indicate that they are reviewing this closely.
Comfort TP S$1.97; SMRT TP S$1.95
For ComfortDelGro our TP of S$1.97 is based on a dividend discount methodology, assuming an explicit three-year growth forecast of 5% and a 3% terminal growth rate. The assumed payout ratio is 80% and cost of equity derived is ~8%. Given that the company continues to make acquisitions and grow overseas, our forecast of 5% growth over the next three years should be easily achievable. We transition growth over three years to a terminal growth rate of 3%. Dividend payout assumption during the stable growth phase is 85%. The downside risks are higher fuel costs, for which the company currently has no hedges, and execution missteps for acquisitions overseas.
Our target price for SMRT of S$1.95 is based on a ROE/PB-growth methodology (ROE/COE), assuming a c.8% discount rate, 6% three-year explicit forecast growth rate and 3% terminal growth rate, and ROE of c.21%. The ROE of 21% is benchmarked against current run rates. This is based on SMRT’s current ROE run rate and an assumption that the company is mostly in a terminal growth rate mode. On the downside, risks include lower-than-expected ridership, softness in the rental business for some stations when lease renewals become due, higher fuel costs, and competition in the taxi business.
SPH – BT
SPH buys Shareinvestor.com
It will pay up to $18m if financial portal meets targets
Singapore Press Holdings (SPH) will buy online financial portal Shareinvestor.com for up to $18 million as part of its efforts to broaden its Internet-based financial services, the publishing company said yesterday.
SPH, which publishes The Business Times, said that it has agreed to acquire all the shares of Shareinvestor.com Holdings from its existing owners for between $12 million and $18 million in cash.
The exact sum payable will depend on whether Shareinvestor.com and its subsidiaries hit certain targets for their 2008 and 2009 financial years.
Under the terms of the agreement, the overall purchase price may be reduced if the targets are not achieved, SPH said in a statement yesterday.
The existing owners of Shareinvestor.com include the Lexicon Group, a Singapore-listed magazine publisher, which owns a 27.7 per cent stake in the company.
The other owners are individuals, comprising its founder and chairman Michael Leong, chief executive Christopher Lee, group IT director Lim Dau Hee and five others.
Lexicon – or Panpac Media.com, as it was then known – first bought its stake in Shareinvestor.com in February 2002. It paid $1.1 million in an all-share deal for 1.85 million Shareinvestor.com shares, or what was then a 25 per cent stake, valuing the company at $4.4 million.
In a statement yesterday, Lexicon said that it expects to make a net gain of about $3.7 million from the sale of its stake, based on the maximum $4.92 million it will get if Shareinvestor.com meets all the targets set out in the agreement.
In March 2004, Shareinvestor.com explored listing on the Singapore Exchange, according to a statement at the time by Lexicon. Shareinvestor.com hired OCBC Bank as issue manager, but ultimately did not go public.
The acquisition by SPH – through subsidiary SPH Interactive – is subject to ‘satisfactory due diligence findings’ and other approvals, SPH said. Lexicon’s shareholders will also have to agree to the sale of its stake.
SPH said that it will fund the purchase from internal resources and the deal will not have a material impact on its earnings or assets for its current financial year, which ends next August.
Founded in 1999, Shareinvestor.com provides financial market news and commentary, data feeds and analytical software and other services for stock trading – some free and others on a subscription basis. It operates in Singapore, Malaysia and Thailand and has more than 7,000 paying subscribers, according to its website.
It also provides online investor relations services for companies in the region, including StarHub, Noble Group and Cosco Corp here, through another website it operates, Listedcompany.com.
It has paid-up capital of $5.9 million.
SingPost – BT
SingPost warns of higher fees
SINGAPORE Post has warned of a potential increase in its net terminal dues payments for international mailing. This comes after it was announced at the recent 24th Universal Postal Union (UPU) Congress in Geneva, Switzerland, that Singapore would be reclassified as a Target Country (previously known as ‘Industrialised Country’) from the current category of Net Contributor Country for the purpose of terminal dues settlement.
The change will take effect from Jan 1, 2010.
Terminal dues refer to settlements for the processing and delivery of international mail between countries. Singapore will have to apply the relevant terminal dues system from 2010 to 2013 and contribute to the UPU Quality of Service Fund. The group foresees an increase in its net terminal dues payments for international mailing as the dues payable by target countries are generally higher.