Author: tfwee
STEng – BT
ST Engg casts its eyes on China growth
Group’s China revenue may hit present US level within 5 years: CEO
IF chief executive Tan Pheng Hock is right, Singapore Technologies Engineering (STE) could see China contribute as much to group revenues within five years as the United States does now. This would be no mean feat, seeing as Mr Tan expects to sell more than US$1 billion worth of products and services in the US this year.
‘With what I want to do in China… in maybe five years, if I can, I will be like VTS,’ said Mr Tan in a recent interview, referring to the group’s US unit, Vision Technologies Systems.
Growth will come mainly from the aerospace and specialty vehicles units, where the group is planning to ramp up capacity and, in the longer term, from the electronics unit. Meanwhile, the marine division currently has no activities in China, but is looking to acquire or set up a shipyard soon.
STE has no defence-related sales in China because it does not want to jeopardise its relationship with the US military, a major customer, Mr Tan has previously noted.
While STE does not sub-categorise revenues from Asia because of the sensitivity attached to sales in Singapore, where the Ministry of Defence is a major customer, Mr Tan said Singapore and mainland China contribute the bulk of group sales in Asia, which reached $1.54 billion for the first half of 2007.
Operations in China started seven or eight years ago when the electronics division started designing intelligent buildings like the Shanghai Museum, but really started expanding only in 2004, when ST Aero formed a joint venture with China Eastern Airlines in the airframe maintenance market. Today, ‘China would have reached a few hundred million in revenues’, said Mr Tan.
‘The bottom line today is not significant. It is profitable but does not have a material impact on our bottom line,’ he said.
Today, the aerospace JV, called Shanghai Technologies Aerospace Company (Starco), is profitable, as are Beijing Zhonghuan Kinetics (BZK) and Guizhou Jonyang Kinetics (GJK), which were set up in 2003 and 2005 respectively to sell trucks, trailers and other specialised vehicles.
Increasing air travel in China is driving a ‘huge demand for aircraft’ and a ‘need for total aviation support’, said Mr Tan. Starco presently serves five Chinese low-cost carriers – Spring Airlines, Okay Airways, China United, United Eagle and Juneyao Airlines – as well as the larger Shanghai-based China Eastern. The work is still purely in airframe maintenance, but Mr Tan believes Starco – which is expanding its hangar facilities at Pudong International Airport to fit three more aircraft – can broaden sales into engine and component maintenance.
Meanwhile, the group will ‘pump money’ into GJK and BZK to upgrade production processes. The two units are now in ‘tier 3’, grouped with state-owned vehicle manufacturers, he said, but beneath the tier 2 manufacturers from Japan and Korea, and the tier 1 companies like Caterpillar and Kobelco. These high-end companies serve the major cities where massive highways are being built, while the likes of GJK serve ‘small inner cities’ and target ‘local community developments’.
As for electronics, growth will come from demand for mass rapid transport (MRT) farecard and communication systems, which STE helps to design. According to Mr Tan, many coastal cities are developing MRT systems, but the projects are not yet at the stage where STE can contribute, because the infrastructure and the train bodies are tendered out before work begins on the electronic systems.
Mr Tan also said that he is looking to acquire an established shipyard in China. Yards are busy and prices are high, but ‘if we don’t go in now, the market will keep going up’, he said. STE’s second option is to acquire a yard that is currently under construction, failing which it will consider building its own.
Another challenge is to find a local partner, which is important for success in China. The problem is that coastal cities tend to be expensive to do business in, and so rich that they may not need Singaporean investment, which means STE will have little bargaining power. ‘What China wants now is management skills and processes. Money is no issue and even technology is less of one because they can buy it. We need to look for places where people will want us, where a local partner can use our capabilities,’ he said.
Other things to consider include proximity to shipping routes, and weather – too far north, it gets cold and costs run higher.
But Mr Tan’s biggest question about China is whether to run the outfit under a strong brand and a single leader, just as VTS in the US is run by retired US general John Coburn, or as separate companies under distinct province heads.
In China, different provinces are like different countries – provinces compete for investment against each other – so a manager who has good relationships with people in one province might be a poor choice to lead the business in another province. ‘If the leader were Singaporean it would be less of an issue, which may mean each province needs a local head as opposed to our having a China head,’ Mr Tan said.
Related to this is whether to have a single ‘big’ MNC brand, or to be seen as ‘pieces’. ‘If you’re big, people will watch and question your movements. People might come talk to you, but remember I want to be outside the radar screen, to be able to choose who I want to acquire, rather than have to say ‘No’. I want to manage sensitively and grow in my own way,’ he said.
Coming from STE, that is a familiar refrain. They once said the same thing about their US operations.
SingTel – BT
SingTel beats forecasts with 10.4% Q1 profit rise
Telco reports $927m earnings on 10% revenue growth in S’pore operations
Singapore Telecommunications yesterday posted a 10.4 per cent gain in net profit to $927 million for its first quarter ended June 30, boosted by unprecedented double digit growth at home as the resurgent economy led to more mobile phone sales and higher business demand.
The strong performance led to an upward rerating. Revenue from the Singapore business is now expected to see high single digit growth, from the previous low single digit forecast, while capital expenditure to support the increased business is expected to rise at a low double-digit rate rather than the previously forecast single digit rate, SingTel chief executive Chua Sock Koong said at a media presentation of the group’s results.
SingTel’s net profit of $927 million easily beat the $894 million average forecast of four analysts polled by Reuters.
South-east Asia’s largest telco said that group operating revenue for the quarter rose an impressive 11 per cent to $3.57 billion compared to a year ago on the back of a 10 per cent revenue growth from its Singapore operations.
Revenues also got a lift from a stronger Australian dollar, up 7 per cent from a year ago. Optus, the SingTel unit which is the second largest telco in Australia, reported a 3.5 per cent increase in revenues to A$1.9 billion (S$2.4 billion). In Singapore dollar terms, there was an 11 per cent increase.
SingTel’s regional associates continued to deliver spectacular profit growth, with pretax profit up 51 per cent to $652 million.
Ms Chua said: ‘We have made an excellent start to the new financial year, with all our key businesses delivering strong earnings growth.
‘In particular, I am delighted that our Singapore business delivered double-digit increase in revenue, which is unprecedented in recent years. Optus also performed well by maintaining growth and profitability in a highly competitive environment, while our regional mobile associates sustained their stellar growth.’
Growth momentum in the preceding quarters and a stronger domestic economy helped propel SingTel’s domestic mobile and broadband sales. Revenues for corporate data services and IT businesses rose on more business activities.
The Ministry of Trade and Industry last week said it was confident that the economy’s strong first-half momentum – notably the robust 8.6 per cent second-quarter pace – will see it through the year. The 8.6 per cent GDP growth amounts to a blistering 14.4 per cent pace in seasonally adjusted, annualised terms. It is the fastest rate in eight quarters.
SingTel’s data and Internet sales were up 13 per cent to $335 million. Mobile phone sales rose 14 per cent to $317 million as the company added 124,000 new subscribers, of which 108,000 were prepaid customers, reflecting SingTel’s increasing market share among foreign workers.
Overall mobile subscribers rose to 1.92 million giving the company a 39 per cent market share, up one percentage point from a year ago.
Broadband subscriptions increased to 438,000, a gain of 66,000. SingTel’s share of the Internet market was 53.7 per cent, down from 54.1 per cent a year ago.
Its IT or NCS revenue rose 12 per cent to $151 million on the back of higher contribution from systems integration and product resale. NCS order books remain strong, the company said. During the quarter, it clinched a number of government contracts in Qatar, China and Hong Kong. In Singapore NCS continued to win jobs from government agencies.
At Optus, operational Ebitda – earnings before interest, tax, depreciation and amortisation – were stable at A$481 million with operational Ebitda margin down to 25.4 per cent from 26.1 per cent a year ago.
Earnings from SingTel’s regional associates on a post-tax basis increased 29 per cent to $463 million, contributing 53 per cent of the group’s underlying net profit, up from 48 per cent a year ago. Year-on-year the group’s combined mobile subscriber base ballooned 48 per cent to 136 million, the largest in Asia outside China.
Group operating expenses rose 12 per cent to $661 million. Free cash flow for the quarter was up 21 per cent to $556 million.
SingTel – OCBC
Operationally better
Mixed results. Singapore Telecommunications Limited (SingTel) reported its 1Q08 results with revenue of S$3.6b, +10.5% YoY and +7.2% QoQ. Net profit was reported at S$927.2m, +10.4% YoY but fell 6.3% QoQ. The underlying profit (excluding one-off items) trend was similar with annual growth at +3.7% but fell 2.1% sequentially. The sequential decline in profitability is due mainly to a high base effect as the result of the recognition of tax credit in the previous quarter. Excluding this item (i.e. at the pre-tax level), SingTel’s numbers would have grown 5.0% QoQ. As in previous results, the key earnings driver remains SingTel’s regional mobile associates. This segment grew 29.0% YoY and 11.5% QoQ. In terms of the two key operating units, Singapore operations margins improved on the back of better cost control whilst the reverse is true in Australia. The overall effect is a slight deterioration of group sequential EBITDA margin to 31.3% (from 32.9% in 4Q07).
Singapore margins improved. In Singapore, even though revenue grew by marginal 0.4% QoQ to S$1,161m, this was offset by a much stronger drop in operating expenses of 6.3% QoQ. This led to EBITDA improving to S$507m, +8.9% QoQ. This is clearly reflected in the sequential margin expansion from 42.3% to 43.7%. The good cost containment was almost across all segments. However going forward, with the recent introduction of IPTV and aggressive marketing, costs are expected to rise, hence we expect the 2H08 margins to come off. In Australia, the scene is a total opposite. Revenue grew 2.5% QoQ to A$1,898m, but was offset by increases in operating expenses of 6.6% QoQ. This led to EBITDA deteriorating 8.2% QoQ, with margins falling from 28.3% to 25.4%. The reason for the poor matrix is due to aggressive acquisition activity which increased 37% QoQ to A$159/sub.
Associates retain star status. The star performers in the quarter were again SingTel’s associates. Collectively they contributed about S$463m or by about 50% to group PATMI (from 42% in 4Q07). More importantly, with the current rate of growth, the associates are likely to dominate future earnings. In terms of importance of individual associates, Telkomsel remains dominant – making up 43% of associate contribution, followed closely by Bharti (34%).
Maintain HOLD. SingTel is a fairly defensive play with generous payout and we do not expect the trend to change. As for earnings, SingTel has guided that it expects revenue and EBITDA to continue to grow. However in terms of ratings, as SingTel is trading close to fair value of S$3.32, we maintain our HOLD rating.
ComfortDelgro – BT
ComfortDelGro’s Q2 profit up 22.4% to $58.5m
THE two-percentage-point cut in Singapore’s corporate tax rate helped to boost ComfortDelGro’s net profit for the second quarter ended June 30 by 22.4 per cent to $58.5 million. The tax cut brought a $6.3 million reversal in deferred tax.
The land transport corporation’s Q2 revenue rose 8.1 per cent to $746.7 million compared to the same period a year ago on the back of strong contributions from its overseas operations.
The world’s second-largest land transport company said bus operations in Australia, the UK and China were responsible for most of the increase in turnover, along with taxi operations in the UK and China. As a result, overseas turnover now accounts for 47 per cent of the group’s total income – up from 45 per cent a year ago. Operating profit for Q2 rose by 8.4 per cent to $81.7 million.
‘Over the last few years, we have moved quickly to seize investment opportunities overseas while exercising financial prudence,’ said managing director and group CEO Kua Hong Pak. ‘Certainly, much of the growth going forward will come from our overseas operations.’
Energy and fuel costs for Q2 rose one per cent to $51.5 million. The group said this amount was lower than expected because of hedging.
But staff costs rose 12.6 per cent to $238 million as more staff were recruited for its expanding overseas operations.
For the first half, the group’s net profit increased 10.5 per cent to $113.9 million. Revenue rose 8.6 per cent to $1.46 billion.
An interim gross dividend of 3.35 cents – from 3.125 cents previously – has been declared. Together with a special gross dividend of 4.15 cents, the combined total interim gross dividend is 7.5 cents.
Earnings per share in H1 rose from 4.98 cents to 5.49 cents.
The group’s listed unit, SBS Transit, posted a 25.2 per cent jump in second quarter net profit to $14.5 million, mainly on rising rail ridership and advertisement revenue. SBST operates the North-east MRT Line. Q2 turnover also rose 9.5 per cent to $166.2 million on higher bus and rail fare revenue.
For the first half, SBST’s net profit grew 20.4 per cent to $31.6 million, while revenue increased 8.3 per cent to $329.1 million.
MIIF – BT
Macquarie fund’s Q2 adjusted net income up
MACQUARIE International Infrastructure Fund (MIIF) has reported a 22.2 per cent rise in adjusted net income to $48.17 million for the three months ended June 30, 2007.
Total investment revenue for the second quarter rose 44 per cent to $60 million, while earning per share was 11.38 cents.
For the half-year period, adjusted net income stood at $52.81 million while total investment revenue reached $70.4 million.
MIIF said the strong results came from solid performances across its portfolio, with the businesses in which MIIF had invested directly performing particularly well. MIIF’s direct investments include stakes in Taiwan Broadband Communications, Changsu Xinghua Port and UK-broadcaster Arqiva.
MIIF will pay a dividend of 4.15 cents per share – an increase of 5.1 per cent on the previous corresponding six-month period – representing an annualised trading yield of 7.9 per cent per annum.
The fund said it expects to sustain and grow the current level of dividend payout over time.
In line with the commitment to focus the portfolio on Asia, MIIF recently divested its stakes in DUET Group, Macquarie Communications Infrastructure Group and Macquarie Infrastructure Company.
The divestments collectively earned MIIF total gross proceeds of about $271.8 million and a combined return of 14.4 per cent per annum against the combined cost of acquisition. The proceeds were used to repay part of the drawn balance on MIIF’s debt facilities.
In April, MIIF took up its share of the Arqiva rights issue for £pounds;87 million (S$266 million) in support of the acquisition of National Grid Wireless for £pounds;2.5 billion by Arqiva’s parent, Macquarie UK Broadcast Ventures Limited.
In July, Arqiva, which makes up more than a quarter of MIIF’s portfolio by value, signed a long-term contract with SDN Ltd to design, build and operate a new high-power national digital terrestrial TV network in preparation for digital switchover in the UK. The contract signed is worth about £pounds;500 million and will run until 2034, the fund added.
The fund said Asia remains attractive as an investment destination for infrastructure due to factors like rising populations and sustainable economic growth which requires investment in new infrastructure and maintenance of existing ones. Plus, ‘the Asian Development Bank estimates that in East Asia alone, the expected infrastructure service needs will be US$165billion annually over the next five years’.
To meet these needs, it is estimated that some 65 per cent of the expenditure would have to be new investment.