Author: tfwee
SPH – BT
Property boost helps SPH weather tough year
Profit slips just 3.6% to $422m; recurring earnings also sturdy at $497m
In spite of challenging conditions, media group Singapore Press Holdings yesterday reported a net profit of $421.9 million for the year ended Aug 31, 2009, 3.6 per cent lower than the preceding year’s $437.4 million.
Revenue held steady at $1.3 billion as a surge in property revenue compensated for a 12 per cent fall in the core newspaper and magazine segment.
SPH publishes 17 newspapers, including The Business Times, and more than 100 magazine titles.
The company announced a final dividend of 18 cents a share, comprising a normal dividend of 9 cents and a special dividend of 9 cents, to be paid on Dec 23.
Total payout for FY2009 is 25 cents, or 6.4 per cent based on yesterday’s closing price of $3.88 a share. Earnings per share was 26 cents, compared with 27 cents for the preceding year.
SPH chairman Tony Tan said it had been a difficult year with many companies suffering large losses. ‘Given the circumstances, SPH did well with FY2009 profits just a shade below that of FY2008,’ Dr Tan said.
Operating profit or recurring earnings fell slightly to $497 million, from FY2008’s $501.7 million. Net income from investments fell from a gain of $47.7 million the year before to a loss of $6.2 million for FY2009.
The core newspaper and magazine division had sales of $892.4 million, down 12 per cent from just over $1 billion the year before, and before-tax profits of $286 million, down from $370.6 million the year before.
However, the property segment turned in a robust performance with revenue up 43.2 per cent at $365.6 million. Revenue from its condominium development Sky@eleven and the Paragon shopping mall rose $104.3 million and $5.3 million respectively. The property segment’s before-tax profits jumped to $242 million, from the preceding year’s $162.8 million.
While higher property expenses contributed to slightly raised total operating expenses, the rise was offset by a $46.2 million or 14 per cent drop in staff costs resulting from lower bonus provision, the Jobs Credit grant and wage cuts implemented in April this year.
Dr Tan said the company will continue to explore opportunities to expand its property arm.
‘SPH has been very encouraged by the success of our present interest in property,’ said Dr Tan. ‘We’ve derived considerable experience in the property field now and we’re always looking for new avenues to augment our profits. We will look at opportunities again as they arise.’
On the outlook for FY2010, SPH CEO Alan Chan said: ‘Business outlook remains uncertain although there are signs of a gradual recovery. Our advertisement revenue, which saw some improvements in recent months, is expected to move in tandem with the economy.’
SPH will continue to monitor costs.
‘Barring unforeseen circumstances, the directors expect performance for the current financial year to be satisfactory,’ said Mr Chan.
SPH shares closed up six cents at $3.88 yesterday, its highest in 12 months. It is almost 70 per cent up from its March low of $2.32.
STEng – BT
ST Engg buys 33% of S’pore Airshow organiser
Price of $17.57m to be paid in cash from internal resources
ST ENGINEERING has bought a one-third stake in events organiser Singapore Airshow & Events (SAe) for $17.6 million.
The vendor was the Defence Science and Technology Agency (DSTA), which retains a 17 per cent stake in the company. Other shareholders are the Civil Aviation Authority of Singapore (30 per cent) and Changi Airport Group (Singapore) (20 per cent).
With the acquisition, ST Engineering becomes the single largest shareholder of SAe. The purchase price of $17.57 million will be satisfied in cash from internal resources, ST Engineering said yesterday.
The company said that SAe’s unaudited net tangible assets as at Aug 31 was about $54 million.
Peter Seah, Desmond Kuek, Tan Kim Siew and Quek Tong Boon are directors of ST Engineering and members of the DSTA Board, the company disclosed.
The acquisition is not expected to have a material impact on the consolidated net tangible assets per share and earnings per share of ST Engineering for the current financial year.
SAe is principally engaged in organising and managing conferences, exhibitions and other related activities. It was set up in 2005 primarily to organise and manage the biennial Singapore Airshow, Asia’s biggest aviation and defence exhibition.
As well, SAe co-organises Singapore International Water Week, an event that brings together leaders in the water industry.
Based on SAe’s audited accounts for the financial year ended March 31, the company’s net tangible assets and loss after tax were $20.6 million and $6.1 million respectively.
ST Engineering said that due to the nature of the airshow business, losses are incurred in a financial year when there is no airshow.
The company said that the Singapore Airshow is an important avenue for it to display its products to an international audience.
Last year, ST Engineering was the single largest exhibitor at the show and announced close to $500 million of signed contracts during it.
ST Engineering’s shares closed yesterday at $2.82, up four cents.
StarHub – CIMB
From hubbing to drubbing
More light on the BPL loss
Maintain UNDERPERFORM, target price and earnings forecasts. We maintain our earnings forecasts pending details on the impact on StarHub’s top and bottom lines from the loss of British Premier League (BPL) broadcasting rights to SingTel during StarHub’s 3Q09 conference call. There is no adjustment to our DCF-based target price of S$1.58 (WACC: 9.4%, LT growth: 1.0%). Maintain UNDERPERFORM as we remain concerned about: 1) a potential spike in pay-TV churns; c) an unravelling of its hubbing model; and 3) the prospect of SingTel snaring more content from StarHub. StarHub’s CEO has provided some insights into the firm’s loss of the 2010-12 BPL rights. We believe the group had underestimated the threat posed by SingTel, could not match the financial muscle of SingTel and was handcuffed from bidding too aggressively as it would not have been able to pass on the increased costs given probable caps on retail tariffs.
StarHub’s CEO’s thoughts on the loss are as follows:
• The outcome of the auction process was not what StarHub had wanted or expected as the CEO had felt strongly that StarHub could retain the rights either on an exclusive or non-exclusive basis.
• While not underestimating SingTel, he felt it was too risky for SingTel to take on BPL because:
• Firstly, SingTel’s ADSL2+ service is not adequate in many parts of Singapore to deliver acceptable-quality IPTV services and SingTel would not be able to serve the entire market with IPTV unless it upgraded its network. Thus, StarHub thought SingTel would bid aggressively only in 2012.
• Secondly, the MDA had been rather explicit that it was studying the BPL situation and would look very unfavourably on any efforts to raise retail pricing.
• As it was not recovering the cost of Champions League and BPL, had network issues and could not raise retail prices, StarHub believed that it did not make sense for SingTel to bid aggressively this round. Interestingly enough, the prospect of a joint bid was possible until the last moment.
• StarHub believed that winning the rights would not benefit SingTel’s business. While unable to divulge SingTel’s bid, StarHub noted that it was a substantial amount over what StarHub was paying. The press has estimated the amount at S$283m (S$400m).
• StarHub’s CEO revealed that only 10% of customers take up the sports package and at least three basic groups. There are more subscribers who sign up to content other than sports. StarHub believes there would be a minimum loss of its pay-TV service presence in households. With negative margins from BPL eliminated, it can allocate more resources to shoring up content and its hubbing proposition.
StarHub will be providing more details on the impact of the loss on its top and bottom lines in its 3Q09 results. It notes that the damage would not be as big as some had feared.
Comments
Underestimated SingTel. Our overall impression was that StarHub had underestimated the threat posed by SingTel. In a post-NGNBN world and in its bid to transform into a multimedia company, it will be critical for SingTel to acquire meaningful content to differentiate itself. The problems outlined by StarHub, while legitimate, are not completely insurmountable. By July 31, SingTel’s ADSL2+ network should reach the entire island from 90% coverage now and issues over its quality should be resolved by then. SingTel Singapore’s CEO Allan Lew was quoted as saying that every home and every business will have access to BPL by that time.
Does not possess the same financial muscle. The other main point was that StarHub lacks the financial muscle to compete with SingTel in a head-on bidding war by virtue of its smaller size. StarHub’s ability to bid up the cost was effectively curtailed by the MDA’s warning to potential bidders about raising retail tariffs. We feel that StarHub was not willing to absorb further pain and margin compression as this would have destroyed shareholders’ value. Cable margins had fallen to 26% from 19% in 1Q08. SingTel, on the other hand, has no such qualms as it is seeking to establish its foothold in pay TV. While dilutive, the impact can be absorbed by its other businesses.
Does not change our view. SingTel is now the premier sports content provider having snared the game-changing BPL rights. The next content up for grabs is the 2010 World Cup where SingTel will give it its best shot. As other exclusive content comes up for renewal after end-2011, we believe SingTel will continuously bid for this in the areas of education, entertainment, movies and drama. StarHub currently has rights to exclusive content such as HBO, National Geographic, CNN, Cinemax and Discovery.
Still a winner’s curse. Although the win would completely transform SingTel’s pay-TV business, it would still be overall negative for SingTel, in our view, as:
• SingTel is unlikely to recover the cost of the rights, which has skyrocketed from S$250m in the 2007-09 seasons to an estimated S$400m. We believe that SingTel will be a loss leader in this segment, leading to negative margins in the initial years.
• SingTel will charge S$23/month, in the first year, for subscription to BPL alone and S$25/month for BPL plus additional sports content (tennis, F1, ESPN, ESS, etc). It would not raise prices in the second and third years. The S$25/month is the same as StarHub’s current charges for its sports package.
We believe that positively, mio TV could be flooded with 239K new subscribers, assuming 45% of the subscribers are on sports, from its base of 101K. SingTel has agreed with StarHub’s assessment that about a quarter of households watch sports alone or an estimated 286K households.
The negative impact is estimated at S$62m p.a. or a marginal 3% on SingTel Singapore and 1.4% of the group’s FY11 EBITDA. We arrive at this figure after assuming that the rights are won at a cost of S$400m (S$133.3m per annum) and SingTel manages to lure about 239K subscribers (entire estimated 45% of subscribers who sign-up for sports packages at StarHub) who will pay S$25/month (S$71.6m per annum). Our estimate does not take into any account additional revenue from advertising.
What sort of impact on StarHub? As customers who sign up before 1 Oct 09 can cancel after Jul 10 without paying a penalty, StarHub’s FY10-11 core profits could be reduced by 19-25% as customers churn and its topline could be crimped to 9%.
Losses could escalate if a mass defection occurs. This is based on the following assumptions.
• While less than half of the subscribers are on sports packages vs. our earlier expectation of 60-70%, we have assumed a 20% churn for FY10-11 as our base case. We believe that some customers may want to retain their subscriptions for other content such as movies, learning and entertainment.
• In addition, we expect some unravelling of its hubbing appeal where we have assumed that 50% of the pay-TV churners will be postpaid mobile and broadband users who will also churn.
Valuation and recommendation
Maintain UNDERPERFORM, target price and earnings forecasts. We maintain our earnings forecasts pending details on the impact on StarHub’s top and bottom lines from the loss of BPL broadcasting rights to SingTel during StarHub’s 3Q09 conference call. There is no adjustment to our DCF-based target price of S$1.58 (WACC: 9.4%, LT growth: 1.0%). Maintain UNDERPERFORM as we remain concerned about: 1) a potential spike in pay-TV churns; c) an unravelling of its hubbing model; and 3) the prospect of SingTel snaring more content from StarHub.
SingTel – BT
SingTel wires up to score with business
Coaxial cabling technology to help bring EPL matches to commercial pay-TV clients
Fresh from announcing its consumer pricing for the English Premier League matches, SingTel reveals that it has another plan up its sleeve.
The telco has been quietly conducting in-house trials aimed at allowing potentially tens of thousands of local businesses to tune in to the next season of the popular soccer tournament in August 2010.
Field deployment of the networking technology to wire up this lucrative customer segment will begin in the coming months.
In a phone interview with BT on Saturday, SingTel Singapore CEO Allen Lew said the company has carried out a series of in-house ‘technical laboratory trials’ to determine the feasibility of using coaxial cabling systems to carry its pay-television signals.
This approach is different from the technology used by SingTel’s existing mio TV platform. The operator’s pay-TV programmes are currently streamed over the Internet using its ADSL (asymmetric digital subscriber line) broadband infrastructure.
With this method, customers are still required to have a phone line and there are also bandwidth limitations which could inhibit the number of high-definition channels that can be streamed at any one time.
The existing ADSL technology is also unsuitable for businesses such as hotels, restaurants, pubs and coffeeshops looking to screen soccer matches over multiple television screens within their premises. This is an important consideration for pay-TV operators as commercial customers typically pay twice or more for their subscription packages compared to consumers.
While the future nationwide fibre-optic network could solve the problem, the project is still a work-in-progress and it will only be fully completed in December 2012, towards the tail end of SingTel’s three-year EPL broadcast contract.
Coaxial cabling technology, on the other hand, has been used by StarHub and many telcos around the world to deliver their cable television and broadband services to consumers and businesses for some time. Coaxial cabling and ADSL lines are the two most prevalent copper-line networking technologies used by telcos today.
Coaxial cables are cheaper and faster to deploy compared to fibre-optic cabling while having a sufficient capacity to carry multiple channels of high-definition video and Internet content.
‘We will use our existing copper (cables),’ said Mr Lew.
SingTel currently owns the most extensive underground broadband infrastructure in Singapore, a complex mishmash of fibre-optic links and cheaper copper cables at the ‘last mile’ which connects to homes and businesses.
SingTel’s coaxial cabling plan looks to be the final piece of jigsaw to fulfil its promise of wiring up all homes and businesses ahead of the 2010 EPL season. It means the telco will be banking on a combination of technologies, including ADSL, fibre-optics and coaxial cabling, to meet this ambitious deadline.
‘The business community is where we are fundamentally strong,’ said Mr Lew. Dedicated account teams will be set up to service commercial pay-TV customers but pricing will be determined on a case-by-case basis as their needs are different, he added.
StarHub had questioned SingTel’s ability to pull off the feat of wiring up Singapore for EPL within 10 months but Mr Lew is bent on proving his arch-rival wrong. ‘We have never said something and not delivered,’ he stressed.
SingTel already held up its promise of not charging consumers more for EPL with the announcement of its price plans on Saturday.
Consumers will have to pay $23 a month to catch the 2010-2011 EPL season on mio TV without having to fork out extra for a basic pay-TV package or for set-top box rental.
As an added sweetener, SingTel will even throw in the Uefa Champion’s League and Europa League matches for free. For an additional $2, customers will get additional channels from ESPN Star Sports, the company which owns the broadcast rights to a bonanza of other sporting events including the Formula One, the Australian Open, Wimbledon and the US Open Golf Championship.
StarHub customers currently pay around $52 for their football fix. This includes a $25.58 monthly subscription fee for the firm’s basic tier, as well as the $26.75 it charges for the sports package.
Some market watchers have questioned SingTel’s ability to recoup its hefty EPL investment since rival StarHub and even Hong Kong’s PCCW failed to make money from screening the coveted soccer league.
But said Mr Lew: ‘We don’t just look at it (EPL) on a narrow basis – there’s a huge impact on our overall consumer business. We know what we have to achieve to make it (EPL) value-accretive.’
TELCO – Kim Eng
Telco Sector Update
Previous day closing price: StarHub $1.97, SingTel $3.08
Recommendation: StarHub Sell (maintained), SingTel Buy (maintained)
Target price: StarHub $1.80, SingTel $3.51
SingTel relieves football fans’ worries…
SingTel has sprung a surprise on consumers and stolen a march on StarHub. From Aug next year, it will cost only $25 a month to watch BPL and other sports content on mio TV ($23 for just BPL) versus $49 for StarHub. Unlike StarHub, there is no basic tier fee, while UEFA Champions League and Europa League as well as the first set-top box (in high definition) are also free. While households without a fixed phone line will need to pay a monthly charge, we estimate consumers will still stand to save 39-55% over StarHUb’s present charges.
…and goes for StarHub’s jugular
By making its pricing for sports content so attractive and announcing it just 10 days after it won the BPL bid, SingTel has made the consumer’s decision to switch an easy one and made StarHub’s response so far (e.g. calling for public consultation over SingTel’s win, waiving termination fees for those who recently signed up just for BPL, etc) pale in comparison. The only stumbling block now lies in the unwieldy arrangement where dual provider households need to have two set-top boxes. While there is still a need for a fixed phone line, the NGNBN will do away with that requirement once it is up and running.
SingTel’s moves are rational despite price aggression
Although SingTel is unlikely to recoup the cost of BPL through Pay TV subscriptions alone, we reckon it will unveil higher-priced, higher-value bundles to attract subscribers to buy its broadband and mobile services as well. Also, SingTel may increase prices for future seasons. There is a good chance it will be able to make this a profitable proposition when viewed from a triple-play perspective and on a three-year horizon. In addition, the advent of NGNBN will make the local telco scene even more competitive and SingTel’s move to secure market share ahead of that seems a rational one despite its willingness to drive up content costs.
StarHub could be in for more pain
In the next 12-24 months, we think SingTel is very likely to use its deeper financial pockets to pursue the acquisition of other sports content such as World Cup as well as entertainment and news channels such as CNN, CNBC, Discovery, HBO and Cinemax. Success in this arena as well as the closing of the technological gap between SingTel and StarHub (SingTel has promised to deliver mio TV access to the whole country by 31 July 2010) could potentially mean more pain in store for StarHub.
Recommendations maintained
On balance, we maintain our present recommendations – Buy for SingTel with a target price of $3.51 and Sell for StarHub with a target price of $1.80.