Author: tfwee
TELCOs – OCBC
Positive 2QCY09 Scorecard; Maintain Overweight
2QCY09 results resilient as expected. All the three telcos – MobileOne (M1), SingTel and StarHub – reported a pretty resilient set of results recently. Both M1 and SingTel earnings were slightly ahead of our forecast; StarHub’s earnings were in-line. Overall, their earnings demonstrated the resilience of the telcos.
Review of operations. On the mobile front, we note that consumer spending (ARPU) has rebounded despite the economic downturn – partly aided by the growth in mobile data usage. Acquisition costs have also started to trend up again for both M1 and StarHub; M1 has shown the sharpest increase but it has managed to bring its churn rate down. On the broadband front, new additions have stagnated and ARPUs for SingTel and StarHub have declined further. On the PayTV front, StarHub has managed to maintain both its subscriber base and ARPU; SingTel has recently announced that its mio TV subscription have exceeded 100,000.
Stable outlook for rest of 2009. Going forward, all the three telcos expect their Singapore operations to remain stable or show slight growth, with EBITDA margins remaining relatively steady; this as they strive to reduce costs to keep pace with the expected softening in operating revenue. But due to their strong cashflow-generative businesses, the telcos have largely kept their dividend payout guidance; M1 to pay at least 80% of underlying net profit; SingTel to pay 45-60% of underlying earnings; StarHub to pay S$0.18/share, or S$0.045/share per quarter.
BPL uncertainty looms but we are not perturbed. The broadcast rights of the 2010-2012 BPL (Barclays Premier League) would be up for grabs and StarHub’s PayTV business would be affected if it fails to secure the rights. However, we are not perturbed. Yes, SingTel may be looking to add more exclusive content but based on its current mio TV subscriber base, it may not be able to fully maximize the investment. But come 2012, SingTel would be in a better position to benefit as the NBN will fully come onstream.
Maintain Overweight. Although there has been a steady switch into highbeta stocks on hopes of a rapid recovery in both the economy and corporate earnings, we are not entirely convinced. And until we see more concrete signs of a rapid recovery, we would still advocate holding on to these defensive counters for their attractive dividend yields and as a means of diversification. Maintain OVERWEIGHT.
SingPost – OCBC
Time to factor in growth possibilities
Bumping up earnings estimates. We have tweaked our earnings estimates to take into account G3 Worldwide Aspac (G3AP)’s contribution to the group’s revenue. We had earlier refrained from doing so given the uncertainty of its impact in the face of a fragile global economy. Although the general mood is still cautious given that government stimulus packages have not resulted in a sustained recovery in consumer spending (amongst other risks present in the global system), we now deem it appropriate to increase our earnings estimates by about 6% to incorporate G3AP’s earnings. Overseas revenue now accounts for 8.2% of total revenue compared to only 0.4% previously.
Recovery underway but not time to party. Composite leading indicators of key OECD countries are continuing their upward trend after reaching their inflexion points around 1Q09. 2Q09 GDP growth cues have also been largely positive, especially for Asian economies. While there are still doubts on fundamental recovery in the financial markets, there is no denying that an improvement in investor sentiment has allowed companies and banks to raise capital and shore up their balance sheets. However, certain risks, such as 1) deteriorating personal credit and loans in the US, 2) possible build-up of asset bubbles in China, and 3) possible weak private sector spending in major economies after government stimulus plans wear off, threaten to destabilise the global economy and hence Singapore’s economy. As SingPost’s earnings are significantly correlated with Singapore’s GDP growth, it is worth noting the possible trajectories of the global economy.
Worldwide postal sector only feeling a pinch. According to a Universal Postal Union survey, postal operators are definitely feeling the effects of the crisis, but are “not showing signs of an economic depression”. Shares of listed postal operators have performed well during this crisis, given their relatively defensive nature. Besides having a decent dividend yield, SingPost is also pursuing growth, as seen by its recent M&A deals, enhancing the attractiveness of the stock.
Maintain BUY. SingPost is still the dominant player in Singapore’s postal industry despite threats from new competitors, and we foresee its strong operating and free cash flows to continue to buttress its reputation as a stable and well-run business. Meanwhile, it is taking the opportunity to grow its regional network during this downturn, which is definitely a positive development. With the incorporation of G3AP’s future earnings, we have also raised our fair value estimate to S$1.09 (prev S$0.97). Maintain BUY.
SPH – UOBKH
4QFY09 Results Preview: Advertising Revenue Has Turned The Corner
Improving advertising spending. Singapore Press Holdings (SPH) will most likely be releasing its 4QFY09 (June – August) results on 12 October. We are expecting a newspaper advertising revenue (AR) contraction of 15% for 4QFY09, an improvement on 3QFY09’s 23% contraction. While AR is still below the level a year ago, it has been making a comeback since April, boosted by Singapore’s residential property boom.
Investment income could surprise on the upside, in view of better financial market conditions. As of end-May 09, SPH had an investible fund of S$0.9b comprising 44.4% cash, 28.7% equities, 14.2% bonds and 12.7% investment funds.
We estimate final DPS of 13-16 cents. A DPS of 13 cents being our worst-case scenario premised on a full-year payout ratio of 86% of earnings and 16 cents is our best-case scenario premised on a payout ratio of 98%. Including the interim DPS of 7 cents that has already been paid, full-year FY09 DPS would be 20 cents and 23 cents respectively (FY08 DPS: 27 cents).
IRs to have a multiplier effect on advertising spending. We believe Singapore’s integrated resorts (IR) will have a positive multiplier impact on consumer spending and hence, advertising spending. At current share price, SPH offers attractive FY10 and FY11 annual dividend yields of 6.5%. Maintain BUY with a target price of S$4.40.
SMRT – DB
Ridership figures could have a lag in the recovery in GDP
Weak start at Circle Line due to poor connectivity however mgmt expects impact to be minimal. SMRT average daily rail and bus ridership in Aug09 grew by 1.6% YoY and -1.2% YoY to 1.4m and 0.8m, respectively. The trend has been weaker than expected due to poor ridership at its core North East South West (NSEW) lines as a result of the slowing economy. In addition, ridership at Circle Line (CCL) has been below our expectations of 55k in average daily ridership. Stripping out CCL ridership of more than 30k in average daily ridership, the core ridership at NSEW lines would have declined by 0.5% YoY. YTD SMRT’s ridership for rail grew at 2.6% YoY and bus at -0.7% YoY.
Revised our ridership forecast downwards. We have revised our FY09E ridership forecasts for rail from 6.4% YoY to 3.5% YoY and bus from 0.8% YoY to -0.5% YoY. We have revised our earnings downwards by 2-3% in FY10-12E to account for the lower ridership in our forecasts partially offset by higher rental revenue assumptions (due to the redevelopment of five MRT stations), lower staff costs, lower depreciation and higher EBIT contribution from bus and taxi divisions.
Lowered our TP from S$2.05 to S$2.00; Buy. SMRT offers a defensive yield of 5.0%. Our revised target price is based on our DCF valuation using a COE of 7.5% and a TGR of 1.0%. Our S$2.00 TP implies a PE of 17.0x FY10E. Downside risks: rebound in the oil price, lower ridership, reduction in fares, taxi competition and disease outbreak.
StarHub – Nomura
Our view
EPL remains an overhang, but StarHub is confident of extending these rights. The likelihood of a joint bid is low and the risk of regulatory intervention to keep prices in check is unlikely to see irrational bids, we believe. Operationally, competition is benign and the macro impact moderating – limited earnings risk this year. Femtocell could become a niche offering, but with limited revenue upside.
Anchor themes
– The operating platform could change leading up to the NBN rollout, pay-TV content ownership should become clearer, and the mobile and enterprise segments could see a lagged impact from a macro slowdown.
– Fibre rollout and its impact remains uncertain in Singapore.