Author: tfwee
SingTel – BT
Dividend letdown stokes SingTel acquisition talk
Q4 gain at $1.1b; group wants ‘financial flexibility’
Singapore Telecommunications yesterday posted better-than-expected net profit of $1.1 billion, up 10.5 per cent for its fourth quarter ended March 31, 2008. Yet it disappointed with no special dividend, bolstering talk that it is poised to team up with associate Bharti to try and land South Africa’s MTN Group in a takeover valued at US$19 billion.
Earnings per share was 6.87 cents, up 10.3 per cent. The telco raised final dividend to 6.9 cents and together with the interim 5.6 cents, it was a full-year payout of 12.5 cents versus 11 cents a year ago. But there was no special dividend compared with 9.5 cents a year ago.
SingTel said that the 12.5 cents raised the payout ratio to 54 per cent of underlying earnings and it is revising its dividend payout ratio to a 45-60 per cent range, up from 40-50 per cent.
On the latest dividends, SingTel chief executive Chua Sock Koong said: ‘We are balancing our desire for an efficient balance sheet with financial flexibility to make further investments.’
But Ms Chua refused to be drawn into SingTel’s intentions should Bharti make a bid for MTN as she said talks were ‘at an extremely preliminary, exploratory stage’.
‘But suffice to say that our role as a strategic investor in any of our investments, and that’s not limited to Bharti, is that we take an active role in the assessment of the investment decisions that are being made at the associates,’ she added.
Before it paid $1.17 billion last year for a 30 per cent stake in Pakistan’s Warid, SingTel had not made a significant acquisition since 2001 when it bought Australia’s Optus for A$14 billion.
SingTel chief financial officer Francis Heng said the group between 2004 and 2007 returned extra cash to shareholders via capital reduction and special dividends when it did not make any significant investments.
For the full year, Southeast Asia’s largest telco said net profit was up 4.8 per cent to $3.96 billion.
For the quarter under review, Ms Chua (who has completed her first full year as SingTel chief) said group operating revenue, which was up 11 per cent to $3.76 billion, was driven by the Singapore business and a stronger Australian dollar.
Singapore business revenue rose 12 per cent to $1.29 billion – ‘the strongest revenue growth in the past five years’, as the operator outpaced rivals in adding a record 244,000 mobile phone subscribers in the quarter. SingTel Singapore now has 2.56 million users – a lion’s share of 43.4 per cent of the market.
But grabbing market share came at the expense of margins, which fell 4.2 points to 37.4 per cent in the quarter from a year ago.
The Australian dollar lifted operating revenue and net profit by $139 million and $12 million respectively.
Optus, SingTel’s Australian unit, reported a 4.5 per cent increase to A$1.94 billion (S$2.51 billion) in revenue for the quarter.
Contributions from SingTel’s regional associates grew a slower 18 per cent on a pre-tax basis in the quarter to $630 million, propelled by its 30.4 per cent-owned Indian associate Bharti Airtel. In the previous quarter, associates’ pre-tax grew 27 per cent. Dividends from associates for the full year amounted to $1 billion, up from $606 million a year ago.
The group continued to generate strong free cash flow. It was up 0.9 per cent to $929 million for the quarter and 27.9 per cent higher to $3.6 billion for the full year.
The Singapore business is the largest contributor of free cash flow to the group, at $1.4 billion for the full year. It also said earnings from regional associates are expected to grow at double-digit levels, though at a slower pace than in the past two years.
SingTel – Phillip
Within Expectations
FY08 Results. SingTel reported FY08 operating revenue of S$14,844m (+11.0% yoy) and net profit of S$3,960m (+4.8% yoy). Moreover, EBITDA increased to S$7,089m (+5.9% yoy). Revenue increased due to growth of the Singapore operations and appreciation of the Australian dollar. Moreover, net profit was higher as a result of the strong performances from the regional mobile associates.
However, the operational EBITDA margin dropped to 30.5 percent (-1.5% yoy) mainly due to higher mobile subscriber acquisition and retention costs in the Singapore market.
It also announced a final dividend of 6.9 cents per shares. Together with the interim dividend of 5.6 cents per share, the total dividend for FY08 is 12.5 cents per share. This is higher than the dividend of 11 cents per share in FY07.
Strong Performances. In Singapore, SingTel continued to post double-digit revenue growth of 12 percent to S$1.29 billion due to success in its growth segments such as mobile communications, data and internet as well as IT and engineering. Moreover, in Australia, Optus achieved a slight increase in operating revenue of 3.8 percent to A$7.76 billion despite a highly competitive market.
The regional mobile associates also posted better-than-expected results for the quarter. Pre-tax earnings gained 24 percent to S$2.56 billion due to the better performances from Bharti Telecom, Telkomsel and Globe.
FY09 Outlook. Management expects its operating revenue in Singapore to grow at mid single-digit level despite the commencement of Mobile Number Portability (MNP) on 13 June 2008. The revenue growth for Optus is likely to be at single-digit level, which will be driven by mobile and wireless broadband services.
Meanwhile, the pre-tax profit contribution from the regional mobile associates is expected to grow at double-digits levels, albeit at a slower pace than the past two years. This is due to more competition in the Indonesian market and higher losses from Warid as it continues to expand its network in Pakistan.
Maintain BUY recommendation, target price reduced from S$4.22 to S$4.01. We have reduced the target price to S$4.01 as we have cut our estimated profit contributions from SingTel’s regional mobile associates. We expect competition to intensify in the regional markets. Moreover, the strong Singapore dollar will result in lower profits when profits are converted from foreign currencies to Singapore dollar.
Nevertheless, SingTel remains a BUY for investors. This is because it pays good dividends. Furthermore, its business continues to grow in Singapore and Australia with strong revenue contributions from its regional mobile associates.
ComfortDelgro – UOBKH
1Q08: Net Profit Down By 9.4% yoy, Hit By Soaring Fuel Costs
1Q08 results below expectation. 1Q08 net profit of S$50.2m was 9.4% lower yoy mainly due to soaring fuel costs. Turnover grew 5.8% yoy to S$749m in 1Q08. Australia was the strongest growth market with a 35.9% increase yoy while the UK market’s revenue slipped 4.7% yoy. Singapore registered a laudable 9.2% yoy increase to S$420.3m, thanks to an increase in both bus and rail ridership. Overseas markets contributed 44% and 47% of total revenue and operating profit respectively.
Bus operations still hurt by volatile fuel prices. CD has not hedged against rising costs since 4Q07, so it is subject to the volatility in fuel prices. We are assuming a full-year price increase of 30% in our model. Singapore bus operations are likely to be hit by soaring fuel costs, but the impact should be mitigated by increasing ridership and fare adjustments. CD’s overseas bus operations to withstand diesel price volatility better thanks to the price adjustment elements built into their contracts, despite a time lag when passing on the cost hikes.
Mixed taxi performance ahead. We believe the taxi fare hike in Singapore has helped taxi drivers increase earnings and therefore maintain CD’s taxi hire-out rates. However, diesel sales to subsidize taxi drivers will continue to hurt CD’s margin under current environment. CD’s taxi operations in China will continue to grow, partly due to an acquisition in Nanjing which was completed in 2007. CD has also guided that the demand for taxi services in the UK market should continue to be affected by the slowdown in the financial sector in London.
Downgrade to HOLD. We value CD at S$1.89 based on the sum-of-the-parts method. We reduce our fair price and earning forecasts to reflect the negative impact of soaring fuel prices and the lower revenue contribution from the UK. We still like CD’s global exposure and decent dividend payout, and suggest accumulating the stock at S$1.65 or below.
ComfortDelgro – DBS
High fuel costs a speed bump
Story: 1Q08 net earnings were below expectations as it declined by 9.4% to S$50.2m despite top line growth of 5.8% yoy to S$749m. The Group was hurt by a weaker performance domestically, which saw operating earnings decline by 15% yoy, due mainly to higher oil prices that hit the Group’s bus business and Diesel sales business (via continued subsidies to taxi drivers). Meanwhile, overseas operations continue to fare well, posting both top and bottom line growth to account for 44.3% of total revenue and 47.1% of Group operating profit.
Point: ComfortDelgro can likely recover some of its margins from higher fuel costs by gradually increasing its diesel pump prices following a successful taxi fare hike. At the same time, the Group can also look forward to a likely fare hike with the PTC review in August, which should help lift domestic bus margins. This set of results does vindicate the Group’s strategy of growing its overseas businesses, which better maintained their margins due to the cost-plus model that is adopted, particularly by the bus operations. Factoring in lower margins, we have cut our FY08 and FY09 earnings forecasts by 8.2% and 7.5% respectively.
Relevance: We maintain our BUY call as we still believe in the Group’s long-term prospects and the Group’s strong balance sheet means there remains potential for earnings accretive acquisitions. CD offers an attractive prospective net yield of 5.5%. We roll over our valuation to 4.5% target net yield on FY09 eamings, giving a 1-year target of S$2.20.