Author: tfwee
SPH – UOBKH
A trading opportunity on market anticipation of FY07 final dividend.
It’s that time of the year. SPH’s final FY07 results will be released in the second week of October. We expect share price to see a rally in anticipation of FY07 final dividend. It’s that time of the year. Traditionally, SPH’s share price sees a rally in the one month leading up to the announcement of the company’s final results. With current share price at S$4.32, the lower end of its trading band, SPH is worth a trade for short-term investors. We are forecasting a final tax-exempt DPS of 20 cents (4.6% yield). Including SPH’s interim DPS of 7 cents, FY07’s full-year tax-exempt DPS is forecast at 27 cents (6.2% yield), based on a payout of 85% of our FY07 EPS forecast. Historically, dividend payout averaged about 90-95%.
Signs of sustained higher advertising revenue growth. ACNielsen’s newspaper advertising expenditure data for June and July 07 points to an 8% yoy growth. Our page-counts of The Straits Times for June – Aug 07 also suggest SPH’s newspaper advertising revenue (AR) growth at 8% yoy in 4QFY07. Coupled with 3QFY07’s (Feb-May 07) strong AR growth of 10% yoy, this would suggest SPH’s AR growth has broken out of its weak 1-3% growth. AR growth has benefitted from Singapore’s strong economy, in particular the robust property sentiments, which have now filtered from the high-end to the mass market. This is generating more demand for display ads. Anecdotally, the strong pipeline of residential property launches over the last 1-2 years has also led to a pick-up in the sub-sales of uncompleted residential properties, which in turn has generated more property classifieds. Allowing for the absorption of Singapore’s additional 2% government sales tax effective from Jul 07, we are forecasting SPH’s 4QFY07 AR growth at 6% yoy.
Newsprint prices continue to its downward trend since Aug 06. North America newsprint prices currently trade at US$561/tonne, a decline of 12% from Aug 06’s peak of US$640/tonne. The growing threat of newsprint supply from China entering key US markets and continued weak newsprint consumption in North America have shifted pricing power to the newsprint buyers. The run-up in newsprint prices between 2002 and 2006 had been entirely driven by newsprint capacity shutdowns in North America. Producers have now run out of easy mill shutdowns in North America and future output curtailment will become increasingly difficult.
Potential timing difference in profits from Sky@eleven. We have forecast S$30m net profit (about 8% of Sky@eleven‘s estimated total net profit of S$363m) to be recognised in FY07. SPH’s management has declined to provide guidance on how much profit will be recognised in FY07. We see any variance as a mere timing difference in profit recognition. This should not be a concern.
Earnings forecasts are tweaked upwards to reflect higher AR growth. We raise our FY07, FY08 and FY09 earnings forecasts by 9%, 6% and 5% respectively to S$510.0m, S$565.0m and S$585.0m. We are now assuming SPH’s annual print AR growth at 6% in FY07 and 5% in FY08 and FY09. Our FY07 earnings forecast has also been adjusted to incorporate the stronger-than-
SPH has turned the corner. It is a large cap stock that has been totally forgotten by the market, due to its lacklustre performance over the last three years. SPH’s core fundamentals are now supported by an improved AR growth, falling newsprint prices, Paragon shopping mall’s rising rentals on the back of rising rentals in prime shopping locations in Singapore, maiden earnings contributions from Sky@eleven and a high annual net dividend yield of 7.4% in FY08 and FY09. Maintain BUY and our target price of S$5.00 (based on our
sum-of-the-parts valuation of S$4.99/share).
Yield Stocks – BT
Buy Stocks with Good Earnings, Yields: Analysts
Recommendations include Reits, conglomerates, telcos, banks, SPH
IN THE wake of the market downturn and continued uncertainty due to the sub-prime crisis, analysts are urging investors to pick up stocks with strong, visible earnings and high yields.
Among the locally listed companies the analysts recommend are business trusts and Reits, conglomerates, telecommunications firms, and even banks. And most appear to like Singapore Press Holdings.
The recent selldown has ‘thrown open more opportunities to invest in value stocks, especially those that have been on an uptrend until July 2007’, said OCBC Investment Research’s Carmen Lee in a report last week. ‘One area we are focusing on now is higher-yielding stocks.’
Ms Lee said several of the blue chips are still offering fairly good returns, based on OCBC’s estimates. Among these are SPH, which at a price of $4.36 would give a projected dividend yield of 5.2 per cent. Another is ST Engineering, which OCBC expects to yield 4.6 per cent in dividends based on a price on $3.70, with projected earnings growth of 16 per cent.
SPH closed at $4.34 last Friday, while ST Engineering closed at $3.80.
In another report, Citigroup’s Lim Jit Soon said that feedback from a marketing session in Hong Kong suggested investors are ‘generally focusing on markets that have better earnings prospects’.
Another emerging theme: ‘avoiding companies with direct exposure to the US’. But while many investors agreed that the sub-prime crisis will continue to unwind, they were also hopeful that lower US interest rates – which another Citi report said is a distinct possibility and has been ‘well-flagged’ – might improve sentiment.
Investors are looking to position themselves in sectors that might benefit sharply from lower US interest rates, with some looking towards Reits and other yield plays like SPH and Rickmers Maritime, said Mr Lim.
Citi continues to recommend sectors with good earnings visibility. It has ‘buy’ calls on Singapore Telecommunications for its defensive cashflows in mature markets of Singapore and Australia, as well as organic subscriber growth in emerging markets in South-east Asia and India.
Citi also likes DBS, which it said is trading below historical valuations. DBS’s main risk from the sub-prime crisis is a fall in capital-market related fees, which formed 23 per cent of 1H07 revenues, it said.
OCBC said market sentiment for trusts and funds is ‘likely to stay muted’ but at current prices they represent ‘good opportunistic buys’ as they have ‘guaranteed payouts for the next 12-18 months’.
It recommends Babcock & Brown Structured Finance, which it said has an ‘assured yield of more than 10 per cent for 2008.’ Another is ‘yield gem’ First Ship Lease Trust, which – based on a price of US$0.87 – is offering annualised half-year yields of over 10 per cent until 1H09.
UOB Kay Hian also likes SPH for its high dividend yield, as well as AusGroup, Cosco and SembCorp Marine for high earnings growth, and OCBC for higher loan growth potential.
Reits could be attractive if expectations of US monetary easing pan out, but banks are unlikely to outperform until third-quarter results are released, it said.
SingTel – BT
SingTel sale of Network i2i stake to yield Q2 gain of $72m
SINGAPORE Telecommunications yesterday said its second- quarter results will be boosted by a $72 million gain arising from the sale of an undersea cable stake to associate Bharti Airtel, India’s largest private phone company.
SingTel said the sale of its 49.99 per cent interest in Network i2i Ltd to Bharti will result in a gain of about $104 million, of which $72 million will be recognised in the second quarter ending Sept 30.
The balance of $32 million will be recognised on a straight-line basis over the remaining useful life of the cable system of about 10 years, SingTel said in a statement.
In January, SingTel said it would be selling its entire interest in Network i2i as the telco optimises its network infrastructure assets. Network i2i owns the undersea cable network between India and Singapore.
With the sale, SingTel, which owns a 30.5 per cent stake in Bharti, will still have indirect ownership of the undersea cable network.
Disposal proceeds amounted to US$66.7 million, comprising cash of US$55 million and assumption by Bharti of a US$11.7 million debt, due from SingTel to Network i2i, it said.
The consideration was arrived at on a willing-seller, willing-buyer basis based on a combination of replacement value and comparable benchmarks for a similar cable system.
As at July 31, the unaudited net asset value of the shares in Network i2i was (US$0.27) per share, said SingTel.
As part of the same transaction, SingTel’s wholly owned subsidiary SingTel i2i Pte Ltd has also entered into an agreement with Bharti to sell its entire 49 per cent interest in Bharti Aquanet Ltd for 159,150,931 rupees (S$5.95 million). The consideration was arrived at on a willing-seller, willing-buyer basis.
The valuation of the shares in Bharti Aquanet was based on an agreed internal rate of return calculated on the initial investment amount. As at July 31, the unaudited net asset value of the shares in Bharti Aquanet was 101.81 rupees per share. The gain on disposal of approximately $1.2 million will be recognised in the quarter ending Sept 30.
The giant telco owns a submarine cable network through its US$40 million investment in Sea-Me-We 4, or the South-east Asia-Middle East-Western Europe 4 fibre-optic cable network.
Sea-Me-We 4, which links 14 countries in Asia, Europe and the Middle East, was built to meet strong demand for Internet and data services from markets in Asia and the Middle East, as well as to enhance communication links between these markets and Europe and the US.
The US$500 million Sea-Me-We 4 cable network, the fourth in a series of cables connecting Asia, Europe and North Africa and completed last year, was built by a consortium of 16 telcos.
Spanning some 20,000 kilometres, it is capable of carrying telephone, Internet and various broadband data streams, besides offering ultra-fast connectivity for the rapidly growing international telecommunications traffic, according to SingTel’s 2005/06 annual report.