Author: tfwee
ComfortDelgro – UOBKH
Playing The Recovery Theme
Playing the recovery theme. We like ComfortDelGro (CDG) for the two opportunities it offers for playing the recovery theme. The earnings recovery momentum derived from lower fuel expenses is set to continue for the rest of 2009. In 2010, we expect to see improved business conditions on the back of a sturdier global recovery to augment the effect of normalised margins, giving a more meaningful boost to earnings.
2009: Margin recovery on lower energy-related costs. Margins are already on the road to recovery on the back of significantly lower oil prices and the company’s fuel hedging programme that was put in place end-08. In 2Q09, EBIT margin recovered to 12.5% (+5.9ppt yoy), and net margin recovered to 7.6% (+3.8ppt yoy). By our estimation, the bulk of the savings in energy-related costs over 2Q08 flowed directly down to net profit.
2010: Turnover improvements augment effects of normalised margins. CDG is set to enter 2010 on healthier margins primarily from lower fuel cost. In addition, we expect increased corporate spending in the UK to help the company’s taxi business there, and the lifting of the temporary fare reductions and transfer rebates to return SBS Transit back to a normal level of performance.
Maintain BUY; target price raised to S$1.85. We have lowered our profit forecasts for 2009-11F by between -6.3% and -11.3%. We value CDG using discounted free cash flow to equity at S$1.85/share (COE: 6.4%; terminal growth: 2%). Our revised target price (up from S$1.76) gives a potential upside of 15.6% over the last closing price of S$1.60.
SingTel – Phillip
1Q FY2010 Results
1Q FY2010 Results. SingTel reported better than expected results for 1Q FY2010. Operating revenue was S$3,848m (+1.9% yoy) and net profit was S$945m (+7.7% yoy). In fact, its Singapore and Australian operations reported double-digit growth in revenue. However, group revenue rose only by 1.9% in Singapore dollars due to the depreciation of the Australian dollar. Moreover, the regional mobile associates, led by Bharti and Telkomsel, posted strong gains in total pre-tax profits of S$647m (+13.4% yoy) even though the Singapore dollar appreciated against most regional currencies.
Profit margin. Net profit margin decreased from 25.3% in 4Q FY2008 to 24.6% in 1Q FY2009. This was due to the increase in operating expenses mainly from the inclusion of Singapore Computer Systems (SCS) in its financial statements.
Merger between Bharti and MTN. Currently, Bharti and South Africa’s largest telecommunications company, MTN, are in discussions and the agreement extends up to 31 August 2009. During the briefing, SingTel has declined to disclose details about the transaction. Currently, SingTel has a 30.4% equity interest in Bharti. We believe that SingTel will try to increase its stake in Bharti to avoid any dilution in interests if the merger is successful.
Listing of NCS. SingTel has acquired SCS and include it as part of NCS. We believe that there is a possibility that SingTel may list NCS after it has reorganised the operations of NCS. This will enable SingTel to raise funds that may be used to increase its stakes in the regional mobile associates, for future acquisitions or distribution as dividends to shareholders.
FY2010F Outlook. The company expects the operating revenue for the Singapore and Australian businesses to grow at single-digit level and low single-digit level respectively. Moreover, among its regional mobile associates, Bharti and Telkomsel are likely to see growth in earnings. Nevertheless, the contributions from the regional mobile associates are likely to be affected by the depreciation in the regional currencies.
Maintain BUY recommendation and target price at S$3.80. We rate SingTel as buy and maintain the target price at S$3.80 because of its good financial performance. Furthermore, SingTel has highlighted that the worst is over and it is monitoring the recovery of its operations. In fact, we continue to like SingTel as it has established operations in Singapore and Australia as well as strong profit contributions from its regional mobile associates.
ComfortDelgro – BT
ComfortDelGro shares up after good results
SHARES of ComfortDelGro continued to climb in trading yesterday after posting a fairly strong performance for the second quarter ended June 30.
They closed three cents higher at $1.60, having been on an upward trend since July 6 last year when it closed at $1.26.
Both DBS Group Research and Deutsche Bank called a ‘buy’ on the land transport giant with target prices of $1.83 and $1.75 respectively, while JP Morgan maintained an ‘overweight’ with a target price of $2.
‘We should continue to see good year-on-year growth continuing into Q3 2009, albeit at a slower rate, on lower operating expenses, particularly fuel costs. The strengthening of sterling and the Australian dollar by 14 per cent and 20 per cent since January should also bode well for the group on a sequential basis,’ DBS Group Research said.
It also singled out Comfort’s ‘diversified geographical presence’ and its ability to deliver stable growth in the economic downturn as plus points.
Meanwhile, CIMB Research maintained a ‘neutral’ on Comfort with a new target price of $1.64 and Kim Eng called a ‘hold’ on Comfort with a target price of $1.59.
‘The stock has done better than expected in recent months on a rising stock market but at the current share price ($1.57), Comfort is trading at 15x FY09 and 14x FY10 forecast earnings with dividend yield of a mere 3.4 per cent,’ Kim Eng said in a note yesterday.
Net profit for Q2 2009 increased by 0.9 per cent to $57.3 million.
However, there was an exceptional gain of $26.5 million in Q2 2008.
Excluding that exceptional gain, the year-on-year increase in net profit for the second quarter of this year would have been 89 per cent.
Revenue fell by 4 per cent to $758.3 million compared to the same period last year due mainly to the negative translation effect of the weaker pound and Australian dollar.
SingTel – CIMB
Positives priced in, but not the negatives
• A mixed bag. SingTel’s 1QFY10 results conference call revealed some positives – namely the strong growth in wireless broadband and iPhones, but also a negative – competition in Australia could pick up following the Vodafone and Hutchison merger.
• Strong wireless broadband and iPhone take-up. Wireless broadband penetration almost doubled among SingTel’s Singapore and Optus’s mobile users over the last 6 months. It still in a nascent stage and the strong growth should continue. Optus’s iPhone subscriber base surged 50% qoq despite being launched 1 year ago. Equally important is 53% of the activations were from users new to Optus and they generate ARPUs of 1.5-2x than that of regular postpaid users.
• Competition clouds looming in Australia? Vodafone-Hutch Australia (VHA) intends to displace Optus as the second largest player by Dec 2011, signalling a rise in competitive intensity. VHA commands a 26% subscriber market share vs Optus’s 33% at end 1H09.
• Upping forecast, lowering TP. We are raising our FY10-12 core net profit estimates by 0.8-2% on the back of our recent upgrade of Telkomsel’s numbers. However, we are cutting our SOP-based target price by S$0.10 to S$3.10 due mainly to revising downwards our valuation for Bharti, based on consensus numbers.
• Maintain UNDERPERFORM as we feel that SingTel’s positives have mostly been priced in and feel that any negative newsflow could cause the stock to de-rate. Our concerns are the rising competition in India and Australia, and the upcoming auction for the BPL broadcast rights for both SingTel and StarHub.
SingTel – DBS
At a Glance
• Underlying net profit of S$945m was 3.5% below our expectations despite double digit y-o-y revenue growth in Singapore and Australia (in local currency terms)
• Optus EBITDA margins slipped 5 % points q-o-q in A$ terms due to higher iPhone activations/ recontracts but should recoup profits from higher ARPU in later quarters
• No change in estimates – maintain HOLD.
Comment on Results
Underlying net profit of S$945m (+10.3% yoy, -1.5% qoq) for 1Q10 was slightly below our expectations but largely in line with consensus. The key variance was lower-than-expected profits from Optus. In spite of a 4.5% sequential increase in revenue (A$ terms), Optus EBITDA declined 13.6% q-o-q to A$505m and net profit declined 28.1% q-o-q to A$139m. This was attributed to seasonality as well as higher customer acquisition costs associated with a q-o-q increase of approximately 50% in iPhone activations during the quarter.
The Singapore business was helped by contribution from SCS and fibre rollout revenue from OpenNet. EBITDA margins stayed stable at 41.8%, and operational EBITDA was up 10.6% to S$578m, in line with revenue. Associates’ contribution was in line, with underlying net profit contribution of S$497m up 14% y-o-y and 19% q-o-q. Strong earnings recovery at Telkomsel, coupled with fair value gains on currency at Telkomsel and Bharti – as highlighted in our results preview piece – were the key earnings drivers.
Recommendation
Management, while noting the challenging operating environment, reiterated its guidance at the beginning of the year – namely, single digit revenue and flat earnings growth in Singapore, single digit revenue and EBITDA growth for Optus and growth from regional associates Bharti and Telkomsel in local currency terms.
While Optus earnings were affected by customer acquisition costs in 1Q, we expect the company to recoup profits from higher iPhone ARPU (about 1.5x normal customer ARPU) in later quarters. Hence, we keep our EPS estimates intact and continue to maintain our HOLD call.