Author: tfwee
M1 – BT
M1’s Q3 net profit rises 1.6% to $43.6m
MOBILEONE (M1) has reported a marginal gain of 1.6 per cent to $43.6 million in net profit for the third quarter ended Sept 30, helped by lower taxation.
Earnings per share was up 12.6 per cent to 4.9 cents.
Total revenue for the quarter rose 5.8 per cent to $200.2 million as M1 managed to sell more handphones in a very tough market where mobile subscription exceeds the population.
Operating expenses rose 8 per cent to $144 million while taxation was 7.8 per cent
Earnings before interest, tax, depreciation and amortisation margin was down to 46.7 per cent from 50.7 per cent.
Statistics from the Infocomm Development Authority of Singapore (IDA) put the country’s mobile penetration rate at 111.2 per cent in June this year, meaning the total number of handphone subscriptions far exceeds the entire local population.
M1, Singapore’s smallest listed telco, said for the first nine months, net profit increased 7.3 per cent to $133.9 million. Revenue for the nine months grew 4.3 per cent to $596.4 million.
M1 added 58,000 new customers in the third quarter to bring its total customer base to 1.467 million.
Data usage continued to grow, with non-voice services contributing 21.7 per cent to service revenue in the quarter, compared with 19.2 per cent in the same period last year.
M1 chief executive Neil Montefiore said, with mobile penetration exceeding 110 per cent, the competitive environment will remain challenging.
‘M1 will continue to innovate and enhance our service delivery to meet our customers’ total wireless communications needs while maintaining a disciplined approach to cost management. M1 will also continue to look for new opportunities for growth,’ he said.
Based on the current outlook, M1 estimates single-digit growth in net profit for full-year 2007.
It also maintained guidance for capital expenditure for full-year 2007 at $70 million.
M1 said total cash distribution for the year to be at least 80 per cent of net profit.
For the half-year, M1 had paid out a total of 7.1 cents comprising an interim dividend of 2.5 cents and 4.6 cents per share by way of a capital reduction without any share cancellation. Together, that amounted to 70 per cent of first-half net profit.
SingTel – BT
SingTel seen eyeing stake worth US$500m in Ghana telco
It’s conducting due diligence, with Merrill as adviser
SINGAPORE Telecommunications is now hunting for high-growth assets far beyond its traditional grounds in Asia, having spent over US$12 billion in acquisitions closer to home in recent years.
Banking sources told Reuters that SingTel, South-east Asia’s largest telecoms company, plans to bid for a major stake in state-owned Ghana Telecom, the West African country’s dominant operator.
The deal, for half of the unlisted company’s shares, may cost SingTel up to US$500 million and pit it against European names like France Telecom, whose mobile arm Orange operates in several African countries, including Botswana and Senegal.
SingTel declined to comment but people close to the deal confirmed that the company, advised by Merrill Lynch, was conducting due diligence and hopes to be short-listed for the bidding process likely to start in about a week’s time.
A telecoms firm in Africa – where only 15 per cent of the population owned a mobile phone at the end of 2005 – would fit well with SingTel’s strategy to invest in low-penetration markets for hyper growth, analysts said.
If the deal goes through, it would be the first major acquisition by a Singapore company in Africa. But not everyone is convinced that an African adventure is a good idea.
‘The further you go (from your traditional markets), the higher the risk you face,’ said Michael Lim, Singapore-based fund manager at Prudential Asset Management.
‘But having said that, if the price is right and the returns are rewarding, then investors may take a positive view,’ he said.
SingTel, facing a small, saturated home market of 4.5 million people, has bought several mobile operators in high-growth Asian nations and in the bigger Australian market.
It owns Australia’s No 2 mobile operator Optus and has major stakes in six Asian telecoms companies, including India’s Bharti Group , Indonesia’s PT Telkomsel, and Thailand’s Advanced Info Service.
Most of these investments have shown phenomenal growth in wireless subscribers in recent years. SingTel’s Indian associate Bharti added over two million customers – about half the population of Singapore – in September alone, lifting its user base to 48.9 million.
Despite that, Priya Gupta, director in credit rating agency Fitch’s Asia-Pacific telecoms, media and technology team believes that an aggressive acquisition strategy could compromise the company’s financial stability, given the scarcity of high-quality assets.
However, investors such as Peter Wilmshurst, senior vice-president of Templeton Global Equity Group, said that he understands why the company was eager for emerging market assets.
‘Telecom is a declining (growth) industry overall,’ he said.
‘But there are some areas within the industry that have strong growth potential and two of them are broadband (Internet) and emerging market mobile,’ he said.
Mr Wilmshurst said that SingTel’s operations in Singapore and Australia offer steady cash flow but little promise of future growth as telecoms penetration has reached around 100 per cent.
‘It’s SingTel exposure to emerging markets that gives it access to the strong growth potential, especially in the mobile segment in these markets,’ he said.
Investors seem encouraged by the prospects. From a decade low of S$1.19 in January 2003, SingTel stock has shot up to a high of S$4 this month, pushing its market value above US$40 billion. The stock has gained 61 per cent in the past 12 months alone. — Reuters
SFI – OCBC
Singapore sparkled, but overseas lost its sheen
Singapore lifted its operation. After several quarters of disappointment from its Abattoir & Hog operations in 2006, Singapore Food Industries (SFI) has managed to maintain the momentum seen in the last three quarters with its Abattoir & Hog operation bringing in profits of S$1.8m in 3Q07. At the net level, SFI saw a 27% YoY increase in earnings to S$5.5m, giving 9-mth earnings of S$19.6m (+6% YoY). While several units within its overseas operations disappointed with losses, this was compensated by the good showing from its Singapore operations, which bucked the trend to post the best quarter since early 2006 with pre-tax earnings of S$8.2m, up 46% YoY. This came from better contribution from Food Catering as it exports “meals-ready-to-eat” to the Middle East as well as from higher consumption and sale prices. Its Abattoir & Hog operation benefited from higher number of pigs supplied and increase in slaughter fee. However, overseas operations disappointed with combined losses of S$0.8m. This was due to higher raw material costs, lower sales and other charges. Management had declared an interim dividend of 1.8 cents (tax-exempt) versus 1.76 cents net declared in 2006. This will be payable on 22 Jan 2008.
Singapore operations are likely to improve in 4Q. Moving forward, management has indicated that it expects improvement in the final quarter of the year. This will come from all three main divisions in Singapore; Food Distribution (due to the re-instatement of a key supply agency for poultry and pork), Food Catering (higher prices and consumption), and Abattoir & Hog (continue to benefit from higher slaughter fee). For its overseas operations, management is aiming for cost-cutting measures and other restructuring to result in a better final quarter.
Yield is good at current price. While we are disappointed by the performance of its overseas operations, we are partly heartened by the pick-up in its previously lacklustre Singapore operation. Overall, we have fine-tuned our FY07 earnings estimate, lowering earnings slightly from S$32.8m to S$32.3m. However, we are cutting FY08 earnings from S$35.0m to S$32.5m to reflect the weakness in its overseas operations. Following these adjustments, we are dropping our fair value estimate from 99 cents to 95 cents to reflect the lower FY07/FY08 blended earnings but still based on the same 15x earnings. At yesterday’s closing price of 81.5 cents and with good estimated yield of 6.5%, we maintain our BUY rating on SFI.
Sing Food – BT
SFI’s Q3 net climbs 26.7% to $5.5m
Higher turnover in S’pore offsets weakness in overseas markets
SINGAPORE Food Industries (SFI) said yesterday its third-quarter net profit climbed 26.7 per cent to $5.5 million – from $4.3 million a year earlier – as food distribution and catering sales improved.
Earnings per share rose to 1.1 cents, from 0.9 cent a year earlier.
Turnover for the three months ended Sept 30, 2007 rose 13.4 per cent to $162 million, from $142.9 million previously.
Revenue was boosted by higher sales in Singapore that offset relative weakness in overseas markets.
Turnover from Singapore rose 23.7 per cent to $66.8 million on higher sales across all Singapore businesses. As a result, profit before tax from Singapore operations increased a substantial 45.5 per cent to $8.2 million.
Turnover from overseas operations also grew, by 7 per cent to $95.2 million. But an $800,000 overall loss was incurred because of losses at subsidiaries Cresset and Shanghai STFI.
‘The improvement in performance in the Singapore operations in the third quarter has been broad-based,’ said SFI chief executive Roger Yeo.
‘This improvement has helped offset the relative weakness in overseas operations, which were affected by significant raw material cost increases in the UK. We will mitigate these higher raw material costs through price increases.’
For the nine months to Sept 30, 2007, SFI’s net profit rose 6.4 per cent to $19.6 million on a 12.1 per cent increase in turnover to $493.4 million.
The company declared an interim dividend of 1.8 cents per share, which will be paid on Jan 22 next year.
Its shares closed 1.5 cents higher at 81.5 cents yesterday. The stock has fallen some 11.9 per cent since the start of the year.
ComfortDelgro – Nomura
A more comfortable ride
Our view
Higher capex related to fleet upgrades, plus higher oil prices, have us fine-tuning earnings and reducing DCF fair value on ComfortDelgro. Still, rising local ridership is exceeding our expectations, overseas investments offer near-term growth, and an FY07F dividend yield of 5.6% appeals. Implied upside is 16%; BUY reaffirmed.
Anchor themes
With healthy economic growth and initiatives to transform Singapore into a global city, demands for improved transport infrastructure to cater to a growing resident and transient population will put increased pressure on existing key domestic operators to improve, upgrade, expand and re-organise their operations.
ComfortDelgro’s overseas investments will drive near-term growth with recent acquisitions in bus and taxi operations in Australia and China, as well as the UK, likely to contribute more significantly to earnings in FY07F and FY08F.
1. Domestic bus capex to rise on fleet upgrade
Scania AB, Sweden’s second-largest maker of trucks and buses, recently announced that it had won a significant order for 500 city buses from ComfortDelgro’s separately listed bus subsidiary SBS Transit. On our estimates, the latest order, which Scania has said is its largest ever in Asia, will cost the group S$150mn.
We believe the order is part of the group’s overall strategy to progressively replace and upgrade its ageing fleet of 2,530 buses. The average age of CD’s buses is now about 12.5 years, and while
the group has extended the useful life of the buses to 21 years, the high occurrence of breakdowns recently is affecting service standards, which are closely monitored by the Land Transport Authority.
SBS Transit is Singapore’s largest scheduled bus operator, with its 2,530 buses making a total of 2.1mn passenger trips per day, with 223 scheduled routes and a total network of 6,522km. The group’s nearest competitor is SMRT’s bus services, with a much smaller fleet of 800 buses plying 74 routes.
We have raised our FY07-10F assumptions for group capex from S$290mn to S$350m pa, to account for the increased spending. Besides the Singapore buses, CD will likely continue to expand its vehicle engineering and bus depot facilities in the UK, China and Australia.
2. Fare hike in bus / rail in October, though higher fuel costs bite
As expected, both the bus and rail sectors pushed through a rate hike of about 1.5-2% this month, in line with a formula set out since 2005. CD’s domestic bus operations account for about 45% of overall bus operations’ 2Q07 EBIT of S$30.8mn.
Despite the fare increase, we believe the group’s domestic bus operations are likely to be hurt by the high fuel prices in 3Q07, given that the group was totally unhedged in the quarter. SBS Transit hedged its fuel requirements in 1H07 at an attractive US$50-55/bbl, compared with last year’s average of US$66/bbl, which had a positive impact on bus earnings in the first half.
We have cut our FY07F earnings forecast by 2.5%, primarily to account for higher fuel costs for SBST’s bus operations in 2H07. We have raised our FY07F group fuel cost assumptions by 7%, which has resulted in a 1.5% fall in the domestic bus EBIT margin to 9%, with overall domestic bus FY07F EBIT now at S$51mn, against S$59.7mn previously.
Still, the latest traffic figures show that CD’s domestic bus and rail ridership continue to see a fairly robust uptrend, with the group’s NorthEast Line ridership in particular showing double-digit gains. Bus ridership rose 3.6% y-y to 2,258,669 per day in August, while August’s rail ridership rose 19.8% y-y to 308,723 per day. For the year to date (January-August), average daily bus ridership is up 4.2% to 2.2mn per day while rail ridership is up 19.7% y-y to 297,082 per day, ahead of our estimates of 2.1mn and 280,000, respectively.
3. LTA review — still waiting for news
In January, the Land Transport Authority appointed Booz Allen Hamilton (Australia) Limited (BAH) as the external consultants for a structural review of Singapore’s public transport industry, particularly for mass public transport, ie, bus and rail. According to the LTA, its target is to raise the public transport share from the current 63% to 70% of the total transport industry over the next 10 to 15 years.
We believe the consultants have submitted their findings (the target timing was mid-2007), with the LTA currently reviewing and evaluating recommendations. We believe it is likely that the LTA will make known the review results and its decisions in the next six to 12 months.
4. Growth to come from overseas operations/acquisitions
Management expects to continue to make overseas acquisitions, with strategic, bolt-on buys, particularly in Australia and China. Benefits are also likely for the group’s UK bus operations, on an extension of the Western Concession charging zone, where Metroline mainly operates.
CD has grown its overseas business significantly, with these operations already accounting for 33% of group 1H07 PBT of S$360.8mn and 44% of sales. In the UK, the group’s Metroline bus business holds a 14% market share, and runs 77 contracts with 1,183 buses, while its 65%-held partnership with Stagecoach in Scotland runs 91 buses. By the end of 2006, the group’s total investment in the UK reached S$295.8mn.
In Australia, the group now operates a total of 693 buses on 123 routes, and has accumulated a 25% share in the metropolitan Sydney private bus transport market, with total investment as at FY06 in Australia at S$151.5mn.
Besides its fairly extensive taxi operations in China (5,029 taxis in Beijing and 1,800 in Shenyang), CD also operates a sizeable bus business. Its largest bus operation is in Shenyang, with 1,818 buses, followed by Shanghai with 535 buses.
In FY06, UK PBT rose 19% y-y to S$60.4mn, China PBT earnings gained 29% y-y to S$42.4mn, while Australia’s grew 8x times to S$17mn.
5. Robust cashflow, attractive yield. BUY reaffirmed
Despite the earnings cut and higher capex assumptions, we maintain our BUY rating on CD given the group’s robust financial position, steady cashflow and relatively attractive dividend yields relative to peers. With the earnings cut and increased capex spend assumptions, our fair value now stands at S$2.27 (previous: S$2.65) based on DCF (method unchanged). Group ROE remains at 16%, while the dividend yield remains relatively attractive (5.6% for FY07F, 4.4% for FY08F).