Author: tfwee
Thomson – BT
Thomson Medical’s Q4 profit increases 30%
THOMSON Medical Centre has reported a 30 per cent increase in net profit for its fiscal fourth quarter, on the back of strong growth from its core business of providing premium healthcare services to women and children.
Thomson Medical’s net income rose to $3.4 million for the quarter ended Aug 31, 2009, from $2.6 million the year before. Its group revenue jumped 19.6 per cent to about $18.0 million.
The group’s revenue from its hospital operations and ancillary services segment rose 14.5 per cent to $13.5 million. One driving factor was the 21 per cent rise in revenue for both obstetrics and gynaecology services. The group also delivered 240 more babies compared with the year-ago period, bringing the total delivered for the quarter to 2,279.
Revenue from the specialised and other services segment climbed 37.9 per cent to $4.5 million.
For the full year to Aug 31, net profit rose 14 per cent to $12.72 million with revenue up 11.8 per cent at $67.4 million. It declared a final dividend of 1.5 cents and a special dividend of 0.3 cents a share.
‘Our commendable set of results underscores the resilience of our business as well as the progress we have made on several fronts in FY2009, all of which contributed to our double-digit top and bottom line growth,’ said its executive chairman Cheng Wei Chen.
Dr Cheng added: ‘To name a few, Thomson Women Cancer Centre, the first dedicated cancer centre for women in Singapore, commenced operations in February 2009. The recently completed resort-style wards contributed to increased deliveries and inpatient admissions. Our network of satellite clinics continues to bring more patient referrals to the hospital while a senior O&G specialist who took up clinic tenancy in the hospital in April 2009, further added to the utilisation of our hospital’s facilities and services.’
The group said it will continue to develop more value-added services and initiatives to meet the needs of patients and their families under its comprehensive maternity membership programmes.
Thomson Medical also said that its hospital consultancy and management project in Vietnam, the Hanh Phuc International Women and Children Hospital, is scheduled to complete its construction in the fourth quarter of this year, and will begin operations in the third quarter of FY2010.
The group said that, despite the uncertainty of the global economic recovery, it believes the demand for healthcare services will continue to be strong. It expects the Cancer Centre and its regional hospital consultancy services – its new growth drivers – to contribute to its overall performance.
Taking into account the activities lined up for FY2010, Thomson Medical expects to remain profitable in FY2010.
The group’s shares closed unchanged at 60.5 cents yesterday.
M1 – CIMB
Highlights from luncheon
Luncheon in Singapore
We hosted a post 3Q luncheon with representatives of M1 on Oct 20th following its 3Q results on Oct 16th. The company was represented by Karen Kooi (CEO), See Leng Sim (Deputy Director of Finance) and Ivan Lim (GM, Finance and IR). There were a total of 8 clients who attended the function. The key talking points centred around the next generation national broadband network (NGNBN), the Qala acquisition, roaming, its single product disadvantage and capital management initiatives. We maintain our earnings forecast, target price of S$2.07 (WACC: 9.5%, LT growth: 1%), and NEUTRAL call. We see a lack of price catalysts but this is offset against the attractive yield of 21% for FY10 which includes our expectations of a special dividend, the most upside to NGNBN and the best exposure to wireless broadband.
In a good position for NGNBN
Qala acquisition to fill in gaps. The Qala purchase provided M1 with access to the corporate fixed broadband market and a customer base to leverage on. Its product suite would also be enhanced as it could provide managed services as well. M1 has commenced the integration process and would realise cost savings from nonduplication systems such as billing and through the rationalisation of staff. Qala is profitable despite a small customer base and has the potential to grow. From this point on, M1 ruled out making other acquisitions as it would only pursue the organic route.
Tight-lipped about strategy. M1 would not divulge specifics over its strategy towards NGNBN. But consistent with its style, M1 would not compete on pricing nor would it bid for premium content. However, we see pricing as an important lever as M1 lacks a unique selling proposition and we gather that some retail service provider (RSP) would be disruptive from the outset. M1 reiterated its longer term goal of obtaining a 20% market share in the corporate and residential fixed broadband market by 2015. Assuming broadband prices remain stable, M1 estimates that the 20% market share could provide a 40% uplift to current revenue.
Roaming to potentially boost earnings
Greater tourist arrivals beneficial in two ways. The opening of the two integrated resorts (IR) in 2010 is expected to draw an additional 2-3m visitors to Singapore, according to the Singapore Tourism Board. The arrival of more visitors would benefit M1 in two ways, namely higher roaming and prepaid revenue. We estimate that FY10’s earnings could be lifted by 5-8% from the additional tourists. We detail our assumptions below. This could also help to spur roaming revenue which has not recovered as roaming traffic was still down some 25-26% on a yoy basis.
• We assume that each tourist would spend the same amount as they did in FY08
• We assume that inbound roaming constitutes 75% of the total roaming revenue
• We assume that EBITDA margins for inbound roaming is 60%
• M1 would capture 30% of the new visitor arrivals
• 5% of the new arrivals would purchase a S$15 prepaid card
Preferred partner to Axiata and Vodafone. M1 is the preferred roaming partner to both Axiata and Vodafone which means that their subscribers automatically lock-on to to M1’s network when they enter Singapore. While the partnership with Axiata was expected given the shareholding linkages, the Vodafone deal is a more stunning coup.
It first secured the deal in 2003 and has recently renewed the arrangement for a further 3 years to 2012. In exchange for a fee, Vodafone supplies business products (such as dongles) at cheaper prices, gets preferential roaming and signalling arrangements. About 70% of Vodafone’s inbound arrivals lock on to M1’s network when they are in Singapore but M1 did not disclose the revenue contribution.
Other updates
Capital management. M1 would not rule out capital management for FY10 but the final decision rested with the board and any decision would only occur after it had refinanced its S$250m loan due in May 2010. The board has traditionally been conservative and would not support a special dividend unless the environment improves.
We are more optimistic and have built in a special dividend of 23.5 cts/share into our forecast. We expect credit markets to recover and had previously forecasted M1’s net debt/EBITDA to fall to 0.4x in FY10, leaving plenty of room to gear up. M1 last undertook a capital management exercise in 2Q07 when its net gearing was 1.0x net debt/EBITDA, a capital structure M1 has described as ideal.
iPhone value. M1 had received a lot of interest for the iPhone implying pent-up demand despite SingTel’s de-facto exclusivity for more than year. M1 had about 10- 20K iPhone users on its network but we believe that growth will accelerate post the launch of the phone.
We view the iPhone as an excellent acquisition and retention tool and an ARPU stimulator through higher data usage. M1 concurred noting that the main value of the device was the higher ARPUs it generated and the fact that it would have faced an untenable situation without the phone. The iPhone is well-suited for its take 3 programme, where ARPUs are 1.15x higher than that of a normal postpaid user. While pricing has yet to be determined, M1 will not deviate too far from the subsidies provided by SingTel. We estimate that SingTel recovers the iPhone subsidies within a period of 6-14 months and believe that M1 would witness a similar payback period.
Cost cutting measures and competition. M1 attributed the 1.4% pts drop in EBITDA margins in part to seasonality. Over time and in a steady state environment, EBITDA margins would drift back up to the 44-46% of service revenue. The main areas to attack would be in the leased line cost as it completes its backhaul investment by end 09. Besides that, it would focus on cost initiatives by improving staff efficiency, expanding its call centre in Kuala Lumpur to handle 50% of the call traffic and improve its network efficiency.
Meanwhile, M1 has seen heavier competition in wireless broadband which caused its net adds to fall to 12K in 3Q from 15K in 2Q because of price discounting by StarHub. In order to retain its market share, it would have to match those promotional prices.
Valuation and recommendation
The session did not provide major revelation with much of the talking points addressed in the 3Q call and in previous discussion with M1. The only real new area explored was the roaming agreement with Vodafone. As a yield play, we continue to advocate M1 over StarHub as its earnings stream is more visible and secure. Moreover, it has the capacity to gear up and we have factored in a special dividend of 23.5 cts/share into our forecast. We maintain our earnings forecast, target price of S$2.07 (WACC: 9.5%, LT growth: 1%) and NEUTRAL call. Although we see a lack of catalysts, this is balanced out by its yield of 21.4% which is inclusive of the 23.5 cts special dividend, the most upside to NGNBN and the best exposure to wireless broadband.
StarHub – AmFraser
Forecasts and fair value lowered on loss of BPL and ESPN Star Sports
• We have lowered our fair value to S$1.94 – based on a DCF approach – revising our terminal growth assumption from – 5% to -6% on the back of reduced opportunities and increased competition in the Pay TV market. StarHub Ltd (StarHub) is currently trading close to our fair value. We recommend a HOLD rating.
• Recent price fall reflects much negative impact from the loss of key sports content in the Barclays Premier League (BPL) and ESPN Star Sports. With the outcome of its biggest risk known, we believe downside is now limited. We quantify the impact as muted on overall bottomline as Pay TV accounts for a fifth of total revenue.
• We have cut our EPS forecasts by 5% in FY10 and FY11, based on a worst case scenario of StarHub losing all sports pack revenues and a 10% cable TV subscriber migration. Management guides that less than half of subscribers take up sports pack among other add-ons with a lesser 10% solely adding-on sports. Latter 10% segment represents risk of migration.
• Elimiation of BPL as a loss leader will be positive after initial negative sentiment over a shake-up in the cable TV segment. We estimate that three-year rights to BPL and ESS amounts to S$240mil. Our low-end estimate for this cost item renders our revised bottomline forecasts as conservative. Strpping off S$80mil in expenses on a full year basis from 2H 2010 revises our EBITDA forecast margin for FY11 from 31.3% previously to 31.7%.
• All is not lost in the Pay TV market. Genre of football and sports is SingTel’s only big value proposition, but StarHub still holds sway with a wider range of other content. We believe there is room for both operators, each serving different interest groups with their differentiated packaging and pricing.
• An improvement in newsflow for StarHub’s OpCo operation in the Next Generation National Broadband Network from end 2009 into 1Q10 buoys prospects for StarHub in the mid-term. Market has, hitherto, not factored in a potential upside from this new revenue stream due to a lack disclosure so far.
• We expect more revelations, as NetCo, the infrastructure provider in NGNBN, approaches its critical 60% rollout target at end 2009. StarHub’s wholly-owned OpCo is scheduled to launch commercial operations at end 1Q10.
TELCOs – DBS
Structural rise in competition?
• Our checks indicate rising competitive intensity in the sector, and we see this as a trend rather than exception next year.
• We lower M1’s FY10F earnings by 6%, now 2% below consensus. Our StarHub’s FY10F earnings are 5% below consensus. Given that M1 offers 7.3% yield with stable earnings prospects, investors may seek higher yield of atleast 9% from StarHub due to the challenges ahead. Downgrade StarHub to FV and M1 to HOLD
• For SingTel, its Indian associate Bharti retaliated with lower tariffs in the second week of October. We trimmed SingTel’s FY11F earnings by 3%, now 4% below consensus. Maintain HOLD for SingTel with lower TP of S$3.20.
Intense competition for market share in the post-paid mobile segment. Our shop visits indicate that all the players are offering up to 50% discount on the published mobile data rates, implying that ARPU may not have much upside, while network capex may rise significantly, as data traffic typically consumes manifold network capacity than voice traffic. M1 and StarHub, on top of the usual handset subsidy, are offering discount of S$100 to the customers who switch from other operators. Broadband tariffs are also under pressure, as consumers prefer to stay with low-end plans. This may adversely impact the margins of all the players in the industry, in our view.
Higher competition may be a trend, not an occasional spike. We see competitive intensity going up rather than coming down in 2010. SingTel’s EPL pricing of S$23/month (compared to StarHub’s min S$25) despite higher content cost vindicates our fear of aggressive customer acquisition targets. Recently, M1 secured iPhone deal, raised its FY09F capex by 20%, and is keen to secure broadband subscribers through National Broadband Network (NBN) next year. StarHub faces an uphill task of defending its mobile and broadband market share, in the face of possible pay TV market share decline next year, in our view.
No excitement in the sector and too early for bargain hunting. M1 trades at 7.3% yield with stable earnings prospects. In our view, investors may seek potentially higher yield from StarHub, at least 9% yield, given risk of mid-single digit earnings decline in the next two years before it stabilizes.
SingTel trades at 4.5% yield with mid-single digit growth prospects, over the next two years, which appear to be reasonable in our view.
StarHub – DBS
Investors may seek higher yield
• The competition across mobile segment may continue to rise as StraHub seeks to defend its market share.
• Given that M1 offers over 7% yield with stable earnings prospects, investors may seek atleast 9% yield from StarHub.
• Based on 9% yield, our revised target price is S$1.90. We downgrade StarHub to FULLY VALUED.
Our key assumptions for StarHub under the base case scenario. Given that about 10% of StarHub’s pay TV subscribers mainly subscribe for EPL matches, we have assumed subscriber decline of 10%/8%, 10%/8% and 3%/2% across pay TV, broadband and postpaid mobile segments respectively over FY10F/11F. We have assumed cable TV ARPU to decline by 20%/10% for FY10F/11F. We expect earnings decline to reverse in FY12F. Given that StarHub’s free cash flow exceeds earnings, we forecast DPS to be over 16 Scents for FY10F and beyond, translating to 98% payout ratio. StarHub has already committed to 18 cents dps for FY09F.
Mobile market share may not decline, if StarHub turns more aggressive. We believe that StarHub could turn more aggressive on the mobile front with higher handset subsidies and other promotions. In our opinion, StarHub may deepen the bundling discounts, so that its pay TV subscribers retain StarHub even when they subscribe to SingTel’s mio TV for EPL matches. StarHub’s mobile market share could still be protected, although not without adverse impact on the margins.
How much yield would investors seek? Due to the risk of earnings decline in FY10F/11F, investors may potentially seek higher yield from StarHub. Given that M1 offers over 7% yield with stable earnings
prospects, investors may seek at least 9% yield from StarHub till earnings decline trend reverses in FY12F. Assuming 17 cents dps in FY10F, based on 9% yield, our revised target price is S$1.90. We downgrade StarHub to FULLY VALUED.