Author: tfwee
ST Engg – BT
STE Q2 earnings rise 12% to $122.8m
HELPED by strong performance in the aerospace and land systems divisions, Singapore Technologies Engineering (STE) yesterday posted a 12 per cent year-on-year increase in second-quarter net profits to $122.8 million. Revenue for the three months to June 30 grew 22 per cent to $1.3 billion, helped by growth in all four divisions.
First-half net profit was 16.8 per cent higher at $231.6 million and revenue rose 21.7 per cent to $2.52 billion. H1 earnings per share was 7.84 cents, up from 6.78, and the board approved an interim dividend of 2 cents per share.
The group’s net profit margin for the second quarter declined due to a fall in investment and other income, according to acting chief financial officer Raphael Chin. Earnings before interest and tax (Ebit) actually rose by 39 per cent.
STE’s order book stood at $9.56 billion at the end of June 2007, slightly lower than a quarter ago. About $1.88 billion of this will be delivered in 2H07.
‘We are in a very strong position at this point,’ said chief executive Tan Pheng Hock. ‘You should be surprised that despite us having no major contract announcements last quarter the order book went down only marginally.’
STE’s aerospace unit saw second-quarter revenue rise 11 per cent year-on-year to $490 million, while net profit rose 14 per cent to $69.5 million.
SAS Component, a Denmark-based aircraft components unit acquired almost two years ago, turned profitable in 2Q07, said Mr Tan. It is the last of STE’s recent acquisitions to do so. The division also started expanding facilities and services – it is adding three hangars at Pudong International Airport in Shanghai and one at Seletar in Singapore.
The electronics arm saw revenues rise 29 per cent to $270 million, while net profits rose 2 per cent to $19.9 million. However, Mr Tan said this was due to a gain on investment last year – the unit’s Ebit actually rose by over 50 per cent.
Land Systems saw revenue rise 37 per cent to $285 million, while net profit more than doubled to $22 million. This was thanks to stronger deliveries of defence vehicles like the Bionix II and Bronco and of specialty vehicles like construction equipment and trucks.
ST Marine grew revenue 32 per cent to $220 million, while net profit declined 11 per cent to $13.9 million.
The group maintains its guidance of higher full-year turnover and pre-tax profit. It also expects revenue and profit before tax for the second half to be higher than those in the first.
Mr Tan said the group plans to invest in research and development on products, which will raise expenses.
He also said the US’ sub-prime worries do not directly affect STE’s operations there, except VT LeeBoy, which sells vehicles used to pave peripheral roads in housing estates. ‘It will definitely impact the LeeBoy business, but not a lot.’
But the credit crunch also means STE’s triple-A credit rating is ‘especially valuable’, he said. ‘It is a card not many people carry and means that we can borrow very cheap.’
Singapore TELCOs – CS
Go counter-consensus: hold M1 not StarHub
■ Event: We are assuming coverage of StarHub with an UNDERPERFORM rating relative to the Singapore market and a target price of S$2.92. While there is 0.7% upside to our target price, FY08 earnings growth is set to be considerably slower than the Singapore market (led by banks, property stocks and industrials). In contrast, we are assuming coverage of M1, consensus’ least preferred Singapore telco, with a NEUTRAL rating and a target price of S$2.40; 14.3% potential upside. Unlike StarHub, we believe that M1 is already priced for the low growth available in the industry.
■ View: After what we expect to be a brief reacceleration in revenue growth in FY07, growth rates are expected to resume a downward trend from FY08. With cellular penetration at 111.2%, we expect a revenue CAGR of only 1.8% from FY07-10. StarHub’s exciting brand and successful bundling strategy are expected to deliver 3.3% compound cellular revenue growth from FY07-10, versus only 0.7% growth from M1. However, this differential is sharply lower than the 12.6% CAGR StarHub achieved from FY04-07, versus M1’s 2.3% compound growth over the same period.
■ Catalyst: As M1 fights back in the cellular market, the 2Q07 results saw an upward revision in its guidance, StarHub’s remained unchanged. While StarHub enjoys dominance in Pay TV, SingTel has now entered the market and, if nothing else, is driving up content costs faster than StarHub’s Pay TV revenues. A significant downside shock could occur to StarHub and SingTel if the next generation network’s (NGN) plans result in new fixed lines being built; M1 can only gain if NGN is genuinely opened to resellers.
■ Valuation: As the sector growth rates slow, becoming increasingly “bondlike”, cash flow yield should become the key metric. StarHub is trading at an FY07 cash flow yield of 6.7%, while M1 is trading at 9.8%. On capital management, a target net-debt-to-EBITDA ratio of 2.0x in FY08 would allow a 13.4% additional yield from StarHub, but 23.3% from M1. We find this divergence too wide, given the converging (and slowing) growth rates.
ST ENGG – SGX
ST ENGINEERING TO DIVEST SHARES IN ASSOCIATED COMPANY, ECS HOLDINGS LIMITED
Singapore, 8 August 2007 – Singapore Technologies Engineering Ltd (ST Engineering) today announced that ST Electronics (Info-Software Systems) Pte. Ltd. (STEE-InfoSoft), together with certain other vendors (Other Vendors) have entered into a conditional Sale and Purchase Agreement (Agreement) with VST Holdings Limited (VST or the Purchaser). Under the Agreement, STEE-InfoSoft has agreed to sell its 75,840,978 ordinary shares (ECS Shares) in the capital of its associated company, ECS Holdings Limited (ECS), to VST. This represents 20.77% of ECS’ issued share capital. The ECS Shares will be sold to VST at a sale price of S$0.668 per share, for an aggregate cash consideration of S$50.7 million (Aggregate Consideration). The sale price of the ECS Shares was arrived at on an arm’s length basis. STEE-InfoSoft is a wholly-owned subsidiary of ST Engineering’s electronics arm, Singapore Technologies Electronics Limited (ST Electronics).
STEE-InfoSoft invested in ECS in September 2004 and the cost of investment in ECS was S$24.8 million. The market value of the ECS Shares based on the closing price of the ECS Shares on the Singapore Exchange Securities Trading Limited on 3 August 2007 was S$47.8 million.
Over the past three years, the investment in ECS had provided good access to additional capabilities and a marketing and distribution channel to offer the group’s information technology solutions to customers in Singapore and other regional markets. This sale of ECS shares presents an opportunity to maximise shareholders’ value for STEE-InfoSoft.
The sale of the ECS Shares is not expected to have any material impact on the consolidated net tangible assets per share and earnings per share of ST Engineering for the current financial year.
Completion of the sale and purchase of the ECS Shares is conditional upon the fulfillment or waiver of certain conditions precedent, which include the following:
(i) The Stock Exchange of Hong Kong Limited (SEHK) having confirmed to the Purchaser that it has no comments on the circular relating to the Agreement to be despatched to the shareholders of the Purchaser for approving the same as a very substantial acquisition pursuant to Chapter 14 of the Rules Governing the Listing of Securities on the SEHK;
(ii) the passing of a resolution by the shareholders of the Purchaser approving the transactions contemplated by the Agreement and the acquisition of all the remaining ordinary shares of ECS by way of a mandatory general offer to be made following completion of the sale and purchase of the ECS Shares and the ordinary shares held by the Other Vendors (Completion); and
(iii) the aggregate number of ordinary shares of ECS being sold to the Purchaser by STEE-InfoSoft and the Other Vendors under the Agreement amounting to not less than 30.1% of the issued ordinary shares of ECS (assuming that all options under the ECS Share Option Scheme II held by persons other than the Other Vendors have been exercised in full).
Pursuant to the Agreement, the Purchaser has agreed to pay a deposit (Deposit) of 10% of the Aggregate Consideration to an escrow agent. The Deposit will be applied towards payment of the Aggregate Consideration on the completion of sale and purchase of the ECS Shares.
Source : SGX
SingTel – ML
Telkomsel drives PO Upgrade
PO upgraded 6% to $4.31/sh
We raise our PO for SingTel 6% from $4.05/sh to $4.31/sh, primarily on the back of an 8% increase in PT Telkom’s PO post its 2Q07 result. As part of his PT Telkom (TLKMF, C-1-7, Rp11,650) PO increase, Verdi Budiman increased his DCF valuation on Telkomsel (65% owned by PT Telkom, 35% owned by SingTel) by 28% from Rp199trn to Rp256trn. This adds 21¢/sh to our SingTel valuation.
Weak SGD also helps
On a SingTel earnings weighted basis, the Singapore dollar is down 3% YTD against SingTel’s subsidiary and major Associate countries. In particular, the SGD is down 7% against the AUD YTD. We rebase our earnings and valuation forecasts on current spot currency rates which adds a further 5¢/sh to our PO.
35% potential return
Our PO combined with our 11.5¢/sh dividend forecast now implies 36% potential return. We have buy recommendations on all of SingTel’s main mobile Associates and believe the flat outlook for the Optus/Singapore domestic stub is more than factored into the current share price. We reiterate our Buy rec.
1Q08 earnings preview – expect strong EPS growth
SingTel is scheduled to report its 1Q08 result on 14th August. We are forecasting pre-exceptional FY08 NPAT growth of 4.6% driven by 26% growth in contribution from Associates and 3.5% growth in consolidated EBITDA. After the capital reduction in September 2006, EPS is expected to increase by 10%. IDA Compensation ($84m per quarter) will not be accounted for from 1Q08 onwards and 1Q07 also benefited from 2 quarters of contributions from Globe. Excluding these two factors, we expect underlying EPS growth of c.26%.
StarHub – BT
Citigroup, Aug 2
GOOD value but limited short-term catalysts: 2Q results and commentary reaffirms our view that the stock lacks immediate catalysts. That said, we think investors with a 12-18 month view should look to accumulate at these levels as cable TV tariff hike-driven profit upside and another capital management effort are catalysts in waiting into 2008. The assured 5.6 per cent yield limits downside risk.
Modestly softer 2Q results: Ebitda of S$164 million (+13 per cent year-on- year) in line but with S$5.3 million in one-time inter-carrier settlement credits. Net profit of S$80.8 million (+7 per cent year-on-year) was lower than our S$86 million estimate on higher (deferred) taxes. Lower mobile margins were the primary reason for lower-than-expected Ebitda.
Subdued margin guidance for 2H: The management flagged higher costs into 2H as the primary reason to maintaining 34 per cent service Ebitda margin guidance for the year (despite 35.4 per cent for 1H). The ‘high-single digit’ revenue guidance for the year is clearly conservative though, given 10.4 per cent growth in 1H and that cable TV tariff hikes kick in effective 2H – we have raised our topline expectations.
Changing estimates: Revenue estimates are up 1-2 per cent for 2007 and 2008 – still conservative, we think, as we attempt to bake in the cable TV tariff hikes. There is minimal change to Ebitda estimates as we factor in higher content costs. The 9 per cent cut in net profit estimates for 2007 primarily reflects a higher effective tax rate – all of this is deferred tax and does not impact cash flows though.
Higher DPS commitment of 15.5 cents for 2007: Versus 14 cents guidance earlier, this reflects a strong FCF profile, implying a sound 5.6 per cent yield.
BUY