Author: tfwee
SMRT – BT
SMRT Q3 net profit dips 5.3%
SMRT Corp’s net profit fell 5.3 per cent year-on-year to $38.3 million for the third quarter ended Dec 31, 2007, even as increased ridership, a higher average taxi hired-out fleet and rental/advertising growth pushed group revenue up.
The earnings fall was because the previous corresponding quarter included exceptional items, a key one being the inclusion of a final contribution from expired cards.
Q3 revenue rose 7.3 per cent to $202.1 million with revenue growth from all sectors. SMRT operates Singapore’s biggest rail network, as well as relatively small fleets of buses and taxis.
But its other operating income dropped 69.5 per cent or about $8.5 million to $3.73 million, in the absence of the exceptional items it saw in the previous corresponding quarter.
Excluding those exceptional items, SMRT Corp said the Q3 net profit figure would have been a $5.4 million or 16.4 per cent improvement to $38.3 million.
‘SMRT has delivered another set of good operating results in Q3 FY08 despite the higher operating cost environment,’ said president and CEO Saw Phaik Hwa. ‘We will continue to pursue opportunities to grow our revenue and at the same time manage costs in all aspects of our businesses.’
Operating profit from the group’s MRT operations in Q3 rose 4.8 per cent to $33 million because of ridership growth. Staff costs were higher. Average daily ridership rose 7.8 per cent to 1.3 million from the previous corresponding quarter.
Meanwhile, Q3 operating profit from buses slumped to $15,000 from $4 million in the previous corresponding quarter because of increased diesel and staff costs, although this was partially offset by higher daily ridership.
The taxi business was back in the black in Q3 with operating profit of $500,000, compared with a loss of $600,000 in the corresponding quarter last year, thanks to a higher average hired-out rate of almost 94 per cent – up from 76.5 per cent.
As usual, rental revenue and advertising did well. Third-quarter operating profit from the rental of retail space jumped 23.4 per cent to $8 million with the redevelopment of more commercial space at various MRT stations. Operating profit from advertising on buses, trains and stations also improved 6.9 per cent to $3.6 million.
Earnings per share in Q3 fell from 2.7 cents to 2.5 cents.
For the nine months ended Dec 31, 2007, net profit attributable to equity holders rose 16.6 per cent to $115.8 million, while revenue rose 6.7 per cent to $593.6 million.
As for the Land Transport Review announcements yesterday and a week ago, SMRT says it is upbeat about the new developments to both bus and rail. It said there are more opportunities to operate and maintain a more extensive rail network, and a good opportunity to grow the bus business beyond current territories. SMRT currently runs only 800 of the 3,700 public buses in Singapore and is restricted to the northern part of the island.
M1 – OCBC
Steady State in 2008
Bigger margin compression in 4Q07. Although MobileOne (M1) posted 4Q07 revenue of S$206.9m (+2.9% YoY, +3.3% QoQ) which came in 16.5% ahead of our forecast of S$177.6m, net profit of S$37.9m (-4.8% YoY, – 13.1% QoQ) fell about 9.4% from our S$41.9m estimate, damped by higher cost of sales. This was mainly due to a 122.9% YoY jump in leased circuit costs to S$10.7m to accommodate the increase in data traffic following the introduction of its mobile broadband services. There was also a 91.2% hike in traffic expenses to S$13.0m on the back of more international call business but as this came mainly from the value segment, it led to a 7% YoY (-10.9% QoQ) fall in M1’s 4Q07 EBITDA to S$76.5m. For the full year, M1 posted a 3.9% YoY rise in revenue to S$803.3m and a 4.4% increase in net profit to S$171.8m. We were expecting earnings to come in at S$175.8m on revenue of S$774.0m. M1 also declared a final dividend of S$0.083, bringing the total dividend to S$0.108.
Post-paid still most important. Operationally, M1 saw another increase of 68,000 subscribers in 4Q07, but the bulk came from the pre-paid segment, which added 58,000 users. Still, post-paid customers remained key and accounted for 89% of its 4Q07 revenue. And with expectedly aggressive promotions, there was a sharp 20.1% jump in average acquisition cost to S$209/user and a 23.5% hike in retention cost to S$147/user. And with the likely implementation of full number portability by 1H08, we can expect the acquisition/retention cost to remain high, if not higher.
Steady state expected in 2008. M1 believes its operations should enter a “steady state” this year, where it should be able to maintain its EBITDA margin at 45-46% as well as a payout ratio of at least 80%. Management also expects to spend S$110-120m in capex, where around S$30m will be spent on building its own backhaul system to reduce leased circuit costs from 2009 onwards. Other initiatives expected this year include bidding for the NGN program, either as a Netco or Opco with its HK partner, as well as running its call centre out of Kuala Lumpur.
Keep BUY with S$2.33 fair value. Thanks to its fairly resilient business and high payout ratio, we continue to like M1 as a defensive stock, especially in the current volatile market. We maintain our S$2.33 fair value and BUY rating.
M1 – BT
M1 posts 4.8% fall in Q4 net profit to $37.9m
Full-year 2007 net profit up 4.4% to $171.8m; final dividend of 8.3 cents
MOBILEONE yesterday reported a 4.8 per cent fall in net profit to $37.9 million for the fourth quarter of 2007 as it spent more on keeping its customers and on higher staff costs.
The smallest of three telcos here said that full 2007 net profit was up 4.4 per cent to $171.8 million.
The fourth-quarter net profit missed the $41.3 million median estimate of six analysts surveyed by Bloomberg.
Q4 revenues rose 2.9 per cent to $206.9 million.
M1 announced a final dividend of 8.3 cents, bringing the total payout (including a capital distribution) to 15.4 cents for the year, representing an 8 per cent yield based on the $1.92 closing price yesterday.
Chief executive Neil Montefiore said that it had been a tough quarter, and 2008 would be even more challenging.
Although its customer base rose 14.8 per cent to 1.54 million, market share fell to 27.4 per cent at the end of November from 28.3 per cent in August and 28.5 per cent in November 2006.
Singapore’s mobile phone penetration rate stood at 116.1 per cent at end-November according to official data – meaning more than one phone per person.
Operating expenses rose 7.8 per cent to $160.7 million during the quarter while the average acquisition cost for each customer jumped 39 per cent to $209. Retention cost rose 4.3 per cent to $147.
In order to retain customers, M1 cut its handset prices. Money from handset sales was 25.9 per cent lower year-on-year at $19.7 million, though it was 22.4 per cent higher than in the third quarter of the year.
Staff costs increased 5.6 per cent to $22.6 million.
Mr Montefiore said that full mobile number portability – where customers can keep the same number when they change operators – due to be introduced in May, would be a challenge for all telcos, although he expects the impact to be neutral on M1. Much bigger rival Singapore Telecommunications, which has the largest customer base, is expected to feel the most impact when number portability is introduced.
M1 will continue to work at reducing costs this year. Initiatives include building its own circuit network, which so far is leased from SingTel. It has already moved its call centre to Kuala Lumpur and expects staff savings of 30-40 per cent.
M1 said that capital expenditure for 2008 will be between $100 million and $120 million. It expects operations to remain stable.
Free cash flow fell 28.8 per cent to $172.7 million at end-2007.
M1 will continue to look at returning excess cash to shareholders every quarter. It also will retain some flexibility for investment opportunities, Mr Montefiore said.
As for the impact of an economic slowdown, Mr Montefiore said that in his experience, telcos are a ‘recession proof’ business.
SMRT – UOBKH
Rail And Bus Ridership Growth A Boon
Rising rail and bus ridership will drive earnings. Anecdotal accounts indicate the mid-Dec 07 taxi fare hikes have led to increased ridership for both rail lines and buses. 81% of SMRT’s revenue and 76% of operating profit are derived from rail and bus operations. We have conservatively factored in a 3% rise in rail and bus ridership (over our earlier forecasts) and this will bring significant earnings enhancement. By 2010, the running of the Circle Line will bring forth a quantum leap in rail revenue.
Retail rental earnings continue to expand. Rental of retail space accounts for only a 5% revenue share, but a significant 18% operating profit share. As more retail space is added to Mass Rapid Transit stations and rented out, rental income will rise, accompanied by expanding operating margin. Taxi operations are now in the black. SMRT recorded a taxi operating profit of S$0.2m in 2QFY08, a reversal from 4QFY07’s S$0.4m loss. This was due to a higher hired-out rate of 90.2% in 2QFY08, vs only 79.2% in 4QFY07. We believe taxi operations can continue to record positive operating profits in the quarters ahead.
S$1.81 target price comprises two components: a) S$1.71 for existing operations, and b) S$0.10 for the Circle Line. Based on an 85% payout ratio, dividend yield is also attractive at 5%.
ComfortDelgro – UOBKH
Earnings To Be Driven By Overseas Operations
Overseas operations to drive earnings in the long term. CD recorded 46% of its revenue from overseas operations for 9M07. Management is targetting to raise this to 50% over the next two years. China may account for a relatively small 7% revenue share currently, but both organic and inorganic expansion could raise this share significantly. In addition, China taxi operations offer an operating margin of 31%, almost treble CD’s overall operating margin. As China revenue share increases, margins should also widen.
Singapore bus and rail ridership rising. Anecdotal accounts indicate the mid-Dec 07 hike in taxi fares has led to increased ridership for both bus and rail lines. We have factored in greater economies of scale, wider margins and higher earnings.
Strong operating cash flow to keep dividend high. CD has consistently generated operating cash flow in excess of S$500m p.a. for the past few years. As earnings expand, cash flow generation could strengthen. We are forecasting 2007 dividends of 10.5¢, which gives a 7% yield.
BUY with a S$2.46 target price based on our sum-of-the-parts valuation model, comprising the following: a) S$0.30 discounted cash flow valuation for Singapore bus and rail operations, and b) S$2.16 from 2009 PE valuation for other businesses.