Author: tfwee
SingTel – DBS
No more premium valuations for Bharti
Story: While Bharti should continue to be the main growth driver for SingTel, we do not advocate premium valuations for Bharti due to the onset of new competition and adverse regulatory actions in India.
Point: Our key concerns are: (1) Average number of players in each circle is set to increase to twelve in the next year from around four now, as a result of new licenses issued in Jan 08. The Indian Govt. intends to bring tariffs 50% down from its current levels, which we think can be achieved in a time span of two to three years. (2) Nationwide mobile number portability (MNP), scheduled in June 09, provides an excellent opportunity for new entrants to gain market share. (3) 3G is likely to be delayed to 2009, which could come as a disappointment to operators, short on the spectrum. (4) A likely increase in spectrum fee could place more burden on the operators who need spectrum the most.
Relevance: We have lowered Bharti’s FY10 earnings estimates by 6%, which reduces SingTel’s FY10 earnings estimates by 2.5%. Our FY09 and FY10 estimates are 3.4% and 3.3% below the consensus estimates respectively, as market appears to have overestimated associates contribution. We have lowered our DCF valuation (WACC 11%, terminal growth 3%) for Bharti to Rs.1030, which is down 14% from Rs.1200 earlier and translates to reasonably high 23 x FY09 PER and 13.3x FY09 EBITDA. We maintain HOLD for SingTel with our new SOTP based target price of S$3.75.
We see single digit earnings growth ahead for SingTel and believe that management is under pressure to invest in emerging markets to deliver on its guidance of doubledigit growth in earnings in the medium term (5-7 years).
SPAusNet – CIMB
Energy infrastructure with income stability
High DPU from cash flow payouts. SP AusNet (SPN) owns and operates about A$6.5bn worth of energy infrastructure (electricity and gas) in the state of Victoria, Australia. SPN is listed on both the Singapore and Australian stock exchanges. It is structured as a stapled security, allowing investors to own two or more related securities that are bound together through one vehicle. The structure allows SPN to pay distributions out of operating cash flows, which include both net profit and non-cash charges like depreciation. SPN is paying out 11.564 A$ cents for FY08 – up 2.6% YoY. SPN guidance for FY09 DPU is at about 11.85 A$ cents, implying a quality 9.3% FY09 distribution yield on today’s exchange rates.
Revenue structure key story here. SPN owns electricity transmission and distribution and gas distribution assets – which are considered regulated natural monopolies due to their strategic nature. What this means is that about 90% of SPN’s revenue is determined by regulating authorities using a methodology that considers cost of capital, inflation, demand trends, likely operating expenses and capex required to maintain the asset. The tariff structure for the distribution assets includes a demand capacitybased component as well. The long-term cash flow visibility is a key selling point for SPN as a yield story.
Where is the growth? Of course, the regulated revenue structure also limits the upside. We do see some avenues for growth – relative population growth in Victoria, government measures to expand availability of piped gas, the installation of “smart meters”, piggybacking a lucrative telco leasing business onto existing networks, and so on. Any significant impact from these avenues would likely be slow to materialize. SPN may also try and jointly work with the Alinta assets that are currently retained by Singapore Power, 51% SPN owner, after SPN’s ambitious acquisition attempt fell through last year. The Singapore Power connection between the two entities may not fly with regulators however and could limit the extent of their cooperation.
Acquisitions are a far more likely bet as a catalyst for re-rating. The infrastructure space has captured a lot of attention and infrastructure funds are hopeful that the recent market volatility may have churned up some choice distressed sales. But SPN at this point is quite significantly leveraged (76% debt-to-regulated asset base) and any sizeable acquisitions will have to await further clearing of the debt and equity markets. We do not have a rating on this stock.
SPH – CIMB
Defensive yields intact
• Core media operations remain sound. Adex remains healthy (12-month moving average of +8% yoy as at end-Apr 08) while newspapers continue to be the ad medium of choice in Singapore (adex share of 40% as at end-Apr 08). Core media operations should contribute 61% to FY08 earnings and 67% to SPH’s sum-of-theparts valuation.
• Limited impact from higher newsprint costs. Newsprint accounts for 15% of SPH’s operating expense. SPH has fully hedged its newsprint cost at around US$600/MT till Oct 08. Our sensitivity analysis suggests a potential earnings impact of -5 to -7% for FY09-10 and valuation impact of -7cts/share (-1.3%), assuming newsprint costs of US$830/MT for FY09-10 vs. current assumptions of US$605/MT.
• Positive on potential NBN investment. SPH has a 15% stake in the SingTel-led JV which is bidding for Singapore’s National Broadband Network. We believe SPH’s investment stake should be less than S$100m and the investment is likely to generate ROE of more than 20%.
• Earnings adjustments. Our earnings estimates have been reduced by 2-11% for FY08-09 but raised by 7% for FY10 as we account for higher newsprint costs in FY2009-10 and push back earnings recognition of sky@eleven towards FY10.
• Maintain Outperform with slightly lower sum-of-the-parts target price of S$5.13 (from S$5.20). SPH continues to offer investors defensive earnings and we believe risks-rewards are attractive at current valuations. The recent share-price weakness offers opportunities to accumulate SPH for recurring yields of more than 6.5%.
SingTel – Lehman
Key takeaways from SingTel NDR
Investment Conclusion
After our non deal roadshow with SingTel management, we are maintaining our 1-OW investment opinion as well as our 12-month target price of $4.50/share based on a SOTP valuation.
Summary
SPAusNet – BT
SP Ausnet delivers on stable returns
SP AUSNET offers predictable and stable returns, managing director Nino Ficca said yesterday.
‘We’ve delivered what we’ve said,’ Mr Ficca said during a briefing on the FY2008 results of the 51 per cent Singapore Power unit.
He was responding to a question on the performance of the stock since it listed in December 2005 in Australia and Singapore, and which, except for a brief period last year, has languished below its IPO price.
SP Ausnet has traded at an average of $1.57, according to Bloomberg. It’s IPO price was $1.75 and A$1.38.
Senior managers of SP Ausnet, which owns and operates power transmission networks in Australia’s Victoria state, are in Singapore this week to meet investors.
Mr Ficca noted that stock markets have been volatile but ‘this is very predictable and stable … our track record speaks for itself’.
Distribution since listing, including next month’s payout of the FY2008 final dividend, will total 26 Australian cents (34 Singapore cents).
It announced a final distribution of 5.788 Australian cents, taking the full-year 2008 distribution to 11.564 Australian cents. Singapore shareholders will receive 11.264 cents less a withholding tax of 0.3 per cent, said Lucinda Kerr of SP Ausnet’s investor relations.
‘We’re not a capital growth stock. It’s more of a distribution yield stock,’ said Ms Kerr, referring to the predictability of the company’s cash flow and its regulated revenue.
For the next three years, 90 per cent of SP Ausnet’s total revenue is assured as it has locked in 100 per cent of regulated revenue.
For current FY2009, SP Ausnet has again guided for 2.5 per cent growth in dividends.
The firm has reaffirmed guidance given earlier this year and expects revenue and earnings before interest tax, depreciation and amortisation growth of about 8 per cent. Net profit after tax is expected to be in line with that previously, due to increased interest charges.
SP Ausnet posted a full-year net profit of A$157.5 million for the period ended March 31, down 11.7 per cent because of costs related to the scrapped Alinta deal from its parent Singapore Power. Earnings per share was 2.54 Australian cents.
SP Ausnet’s stock closed one cent higher at S$1.63 yesterday.